New Delhi: Oil is on the boil once again with crude prices going over $127 a barrel, which is the highest since August this year.
Oil surged $22.46 to $127.01 a barrel, after reaching as high as $128.55 - a $24 gain - at these levels it will be oil's biggest gain ever in dollar terms.
The jump came mainly from speculation that the US government's $700 billion financial bailout package will boost the economy and increase demand.
The other reason for the jump in prices was the covering of short positions by oil traders as Monday was the last day of trading in the October oil futures contract.
The crash of dollar against other major currencies on fears that the bailout of financial institutions will exert tremendous pressure on the US government's deficit to rise further was also one of the reasons for the price rise.
"The biggest news is that people are looking at the $700 billion plan as supportive of demand, supportive of the economy," Peter Beutel was quoted as saying by CNNmoney.com.
"Everything we are looking at right now says demand has a chance to come back if the economy starts to strengthen."
In addition, a handful of supply disruptions jolted the oil market's late-afternoon rally. Refinery capacity in the Gulf Coast was still limited post- Hurricane Ike, violence in oil-rich Nigeria, and chatter of Saudi Arabia trimming production added fire to the rally, according to Andrew Lebow, a broker at MF Global.
As the price of oil is whipsawed by demand worries, Wall Street's flailing crisis, investors are having a hard time grasping oil's next move. "Traders are trying to catch knives people are throwing from the top of buildings," said Lebow.
Electronic trading of oil was halted for five minutes on Globex this afternoon following the $10 spike in oil, but trading has now resumed.
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