Oil rebounds, spikes $6 on safe-haven buying
NEW YORK -- Oil prices shot up $6 a barrel Wednesday, rebounding as fears of a spreading crisis in the U.S. financial sector sent skittish investors scrambling out of stocks and into hard assets.
Light, sweet crude for October delivery rose $6.01, or 6.59%, to settle at $97.16 a barrel on the New York Mercantile Exchange. Prices tumbled more than $5 to close at $91.15 on Tuesday.
Prior to the rally, oil had fallen about $55 — or 38% — since hitting a record $147.27 on July 11.
Wednesday's big rally at least temporarily halted crude's steep, two-month slide and brought prices back within striking distance of $100. Investors were frantically buying the same commodity that until this week they shunned in the belief that the slowing global economy was eroding demand for energy.
But analysts said oil is unlikely to resume its upward climb; the economic downturn has indeed sharply curtailed demand, and they noted that recent rallies often have been followed by sharp sell-offs as oil market traders try to cash in.
Wednesday's oil rally was energized by the bailout of AIG. The Federal Reserve on Tuesday agreed to pump $85 million in taxpayer money into the insurance giant in return for a 79.9% ownership stake. The lifeline was aimed at avoiding an AIG collapse due to massive losses tied to the subprime mortgage crisis and the credit crunch.
Oil's climb picked up speed later in the day, stoked by fears that more turmoil lay ahead. Investors raced to dump stocks and poured money into energy, precious metals and other commodities, which are often bought as safe-haven investments during rough economic times.
"We're seeing this crisis of confidence engulf the market again and oil's getting caught up in it," said Phil Flynn, analyst at Alaron Trading in Chicago.
If AIG had been allowed to fail, investors feared the company would move to unwind positions in energy and other commodities to raise cash, setting in motion another big commodities liquidation. Oil's big two-day price drop this week was due in part to similar concerns that surfaced after Lehman Brothers Holdings filed for bankruptcy Monday.
