Oil price rises to $105 US government bailout boosts confidence

Oil prices have risen to $105 following an announcement by the US government that it will be creating a $700 rescue fund to buy back bad debt from ailing US banks and other financial institutions. This will extend US national debt to $11.3 trillion.

Sweeping government measures to rescue the financial system and restore confidence in shaky markets spurred a huge relief rally across markets on Friday, when oil rose almost 7 percent to cap its biggest three-day rally in a decade. Oil fell more than $10 a barrel early last week as the bankruptcy of Lehman Brothers Holdings Inc. shocked world equity markets.

Analysts commented that while there was still uncertainty about the workings of the rescue plan, investors were hopeful that the bailout plan would put an end to the recent financial turmoil that has rocked Wall Street
"There is still uncertainty on the proposed bailout and if it will have a sustainable impact. But for now, investors are focusing on the bullish sentiments that has swept through the financial markets and some traders are probably seeing a buying opportunity," said Gerard Burg, a resource analyst at the National Australian Bank in Melbourne.

"In the broader context of the oil market, there are still plenty of supply side pressures."

U.S. light crude for October delivery rose $0.60 to $105.15 a barrel by 0055 GMT, rebounding from earlier losses of as much as $1.20 which analysts attributed to worries about the workings of the rescue plan.

The contract jumped $6.67 to settle at $104.55 a barrel on Friday, bringing gains since Wednesday to 14.7 percent -- biggest three-day surge since December 1998.
London Brent crude rose $1.03 to $100.64 on Monday.

Author: Jo Amey