Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Oil settles above $104 after bailout

Crude rises by more than $14 in three days as fears about the solvency of the financial markets ease on a proposed government bailout.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Oil prices zoomed back above $104 a barrel Friday as hope grew on Wall Street that a government bailout could help ease the credit crisis putting a stranglehold on the U.S. economy.

U.S. crude rose $6.67 to settle at $104.55 a barrel. It was the second-largest rise of oil prices in dollar terms on record, bested only by a $10.75 rise on June 6.

Oil's rally was boosted Friday as the government drafted a program to restore much-needed liquidity to the financial markets.

Treasury Secretary Henry Paulson said Friday he will continue to work with lawmakers through the weekend on the details. The plan will include a federal bailout of financial institutions by taking on tens of billions of dollars in untradable mortgage assets.

"The bailout took some of the pressure off the market, allowing some of the fundamental buying to come back in," said Peter Beutel, oil analyst at Cameron Hanover. "People began to do some long-term hedging, even though the overall trend in this market is lower."

After falling more than $10 Monday and Tuesday on fears that the crisis on Wall Street would further reduce demand for petroleum products, crude has gained back all of its losses - and then some - from earlier in the week. Oil prices rose by $6.01 - the second-largest margin ever - Wednesday, followed by a near $1 rise Thursday as initial end-of-the-world fears continued to ease.

When the excitement dies down

"The bailout is supporting oil prices in the short run, but the question is about the long run," said Phil Flynn, senior market analyst at Alaron Trading. "The market is torn - on one hand, a bailout may save the financial sector, but on the other hand, it's unclear if that will result in higher demand for oil."

Despite the recent rise, crude oil prices still remained about $43 a barrel lower than where they were two months ago, when they hit an all-time trading record of $147.27 on July 11.

Since then, fears that high oil prices and a crumbling global economy have reduced demand for the commodity resulted in a 2-month slide that took away a third of oil's value.

Still some analysts believe that traders' eased of fears of global economic collapse may inspire a new run on oil prices. Furthermore, the oil contract for October delivery expires after the market close on Monday, and prices tend to fluctuate wildly in anticipation of the termination.

"There's an increased willingness to take on risk after bailout," said Rachel Ziemba, an oil analyst with RGE Monitor. "People are also moving up their positions in anticipation of the contract expiration."

Also sending oil prices rising Friday were reports that a militant group in Nigeria bombed an oil conduit controlled by Royal Dutch Shell (RDSA).

Hurricanes

The Gulf of Mexico oil region was still struggling to get back on its feet after two hurricanes - Gustav and Ike - pummeled the production and refinery rich area.

As of Thursday, 15 refineries in Texas and Louisiana were shuttered or running on reduced capacity, according to the U.S. Department of Energy. Meanwhile, 89% of crude production in the Gulf of Mexico remained closed.

According to a report from the Minerals Management Service, 49 of 3,800 offshore platforms were destroyed by Hurricane Ike. Personnel from 268 out of 838 - or 32% - of the production platforms and rigs remained evacuated, according to MMS as of Friday.

Though some activity has been restored, it could take another week for normal operations to resume. On Wednesday, a weekly supply report showed a much-larger-than-expected drop in crude and gasoline stockpiles, boosting crude in its meteoric rise in that session.

The National Hurricane Center is reporting more tropical activity forming in the Caribbean. Though the likelihood that the activity could form into another large tropical storm is slim, traders were reminded that hurricane season isn't over yet.

"It's just one crisis after another," Flynn said. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
A White House press briefing as told by CNN's sketch artist The White House started banning cameras during some briefings, so CNN sent in sketch artist Bill Hennessy. More
The best gadgets for your next business trip Hotels often lack the resources business travelers need to work efficiently. But fear not: These six gadgets will turn any hotel room into a temporary office. More
Must-have gadgets for business travelers For many business travelers, commuting through airports and enduring flights is the worst part of any trip. Thankfully, these seven gadgets help make life on the road -- and in the air -- much easier. More