Oil settles above $54 a barrel
Crude jumps as investors welcome the government's support of ailing financial firm Citigroup.
NEW YORK (CNNMoney.com) -- The price of oil surged Monday as investors cheered the federal government's massive rescue package for banking giant Citigroup.
Light, sweet crude for January delivery rose $4.57 to settle at $54.50 a barrel on the New York Mercantile Exchange. The contract rose more than $5 at one point to reach a session high of $55.30 a barrel.
The advance came after the U.S. government announced plans Sunday to inject another $20 billion into Citigroup (C, Fortune 500) and guarantee losses on more than $300 billion in bank's troubled assets. (Full story)
Sunday's news lifted European markets and stocks in New York were up more than 3% in afternoon trading.
Monday's rally is "tied to the hope that equity markets will continue to recover," said Andrew Lebow, energy broker at MF Global in New York. Rising stock prices "add some positive sentiment to the oil market," he said.
Oil traders have closely followed world stock markets as a barometer of economic activity and future energy demand. As a result, oil prices tend to rise and fall in tandem with stock prices.
Investors also welcomed news that President-elect Barack Obama has finalized decisions on key members of his administration's economic team. (Full story)
Obama named New York Federal Reserve President Timothy Geithner as his Treasury Secretary nominee and former Harvard President Lawrence Summers as the director of the National Economic Council.
The president-elect said his team is working on an economic recovery plan that aims to create 2.5 million jobs through infrastructure investment and alternative energy projects.
Still, oil traders remain wary of the global economic slowdown and the grim outlook for future energy demand. Concern that the global economic slowdown will continue to undermine demand for gasoline and other petroleum products has driven the price of oil down more than 60% from July's all-time high above $114 a barrel.
"While we have no reason to turn fundamentally bullish on oil prices this week, the market is oversold and could potentially rebound," said Tom Pawlicki, oil industry analyst at MF Global in Chicago.
Meanwhile, the oil market is also gearing up for an informal meeting of the Organization of the Petroleum Exporting Countries set to take place in Cairo this weekend. OPEC will hold its regularly scheduled meeting Dec. 17 in Algeria.
The cartel cut output by 1.5 million barrels a day last month in an effort to slow the rapid decline of oil prices. Analysts say OPEC could announce an additional production cut at its next meeting.
Lebow said there is some "skepticism" in the market about OPEC's ability to influence the price of oil. "In the market the concern is about demand," he said.
Retail gasoline prices fell another 2.1 cents overnight to a national average of $1.929 a gallon, according to the motorist group AAA. Gas prices slid below $2 a gallon Friday, the first time in more than three years below that mark, and were down more than 50% from July's all-time high of $4.11 a gallon.