Oil jumps above $104 a barrel on US bailout plan

Oil prices shot up more than $6 a barrel Friday, breaking back into $100 territory as a sweeping government plan to rescue the imperiled U.S. financial system emboldened investors to re-enter the markets.

Light, sweet crude for October delivery rose $6.67 to settle at $104.55 a barrel on the New York Mercantile Exchange, after earlier rising as high as $105.25. It was oil's first close above $100 in a week.

Crude has climbed over $13 in the past three days as the government carries out a historic intervention into the financial system. But analysts say prices could resume their downward trend, noting that demand for energy will likely remain weak as a slumping economy leads Americans to drive less and businesses to scale back operations.

On Friday, Treasury Secretary Henry Paulson said the rescue plan was aimed at removing billions of dollars of troubled assets from the books of banking institutions and restoring calm to panicky financial markets after a week of intense volatility. The Securities and Exchange Commission also temporarily banned short-selling - or betting that a stock will fall - of about 800 financial firms, hoping to stem heavy losses in that sector.


(AP) Graphic shows the price of crude oil;
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The moves soothed skittish traders and sent stocks surging on Wall Street, giving a boost to energy and other commodities. Crude jumped nearly $5 in morning trading, gave back most of the gains later in the day and then climbed again toward the end of regular trading.

"The government rescue plan has reduced the likelihood of a financial meltdown, so the theme of energy demand deterioration is being pushed to the back burner for the time being," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

But he and other analysts pointed out that oil's fundamentals remain largely bearish.

Crude prices have fallen about $43 since reaching a record $147.27 a barrel on July 11 on concern that slowing economic growth in developed countries will undermine crude demand.

Those fears deepened this week as turmoil in the U.S. financial system led to the bankruptcy of investment bank Lehman Brothers Holding Inc. and an $85 billion government rescue of insurer American International Group Inc. (AIG)

"People realize we still have a weak economy and $100 oil in these conditions is still very expensive," said Stephen Schork, an analyst and oil trader in Villanova, Pa. "I'm not a believer that the ship has been turned around and that we're going back toward $150 oil."

Meanwhile at the pump, gas prices eased slightly as more Gulf Coast refineries came back on line following the passage of Hurricane Ike last weekend. A gallon of regular fell less than half a penny to a new national average of $3.807, according to auto club AAA, the Oil Price Information Service and Wright Express.

Nigeria's main militant group said Thursday it bombed another oil pipeline, marking a sixth straight day of stepped-up violence in Africa's oil giant.

The Movement for the Emancipation of the Niger Delta said in a statement it used high explosives to destroy the conduit run by a unit of Royal Dutch Shell PLC. (RDSB)

Shell officials could not immediately be reached for comment.

The militants have declared an "oil war" in the Niger Delta, where militants demanding more oil-industry funds from the federal government have increased attacks. About 40 percent of Nigeria's normal daily oil production is now off-line, severely curtailing exports.

Still, oil traders seemed to largely ignore the violence, repeating a trend of recent weeks in which normally bullish news fails to rally the market.

"The focus of the market right now has switched from supply to demand," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "So these stories will have some impact, but not as much as they had during the last six months when the market was supply-driven."

In other Nymex trading, heating oil futures rose 11.54 cents to settle at $2.8978 a gallon, while gasoline prices gained 11.73 cents to settle at $2.5997 a gallon. Natural gas for October delivery fell 7.8 cents to settle at $7.848 per 1,000 cubic feet.

In London, November Brent crude rose $4.42 to settle at $99.61 a barrel on the ICE Futures exchange.