Oil prices make historic gain

— -- The price of oil, below $100 for much of last week, rocketed to its biggest one-day dollar gain in history on Monday as speculators had to buy at any price to deliver on contracts expiring that day.

"A short-term panic," says Joe Marshall, energy trader at McNamara Options. "I've never seen a move like this in one day."

Light, sweet crude oil for October delivery closed the Nymex trading day Monday at $120.92 per barrel, a leap of $16.37 a barrel from Friday's close.

The run-up smacked against Nymex's $10 limit, halting electronic trading for five minutes in the afternoon before the limit automatically reset to $20. There was no interruption in "open-outcry" trading at the Nymex, says spokeswoman Brenda Guzman.

"Traders (in recent days) were thinking, 'The price is going down so let me get it tomorrow when it's cheaper,' but inventories got to very low levels so traders were stuck and had to purchase" at escalating prices to cover October contracts, says A.F. Alhajji, chief economist at NGP Energy Capital Management.

Contracts to buy oil for delivery in November through next March were priced much lower — $108.78 to $109.37 per barrel — suggesting Monday's price explosion was an aberration.

"The fundamentals are there; the market will go up no matter what — but not ($16.37) in one day. Outrageous," Alhajji says.

The Commodity Futures Trading Commission said it will review the day's trades to make sure the jump wasn't a result of market manipulation.

Also putting upward pressure on prices in two ways was the administration's proposed $700 billion bailout of financial institutions holding troubled mortgage-based investments.

Currency traders worried that the huge price tag of the bailout could weaken the U.S. and make its currency a riskier bet. That was blamed for a big drop Monday in the value of the U.S. dollar and, because oil is priced in dollars, a fall in the dollar's value means higher oil prices.

The dollar drop was steepest against the euro, which hit $1.4804 late Monday, up from $1.4470 Friday. That was the euro's biggest one-day jump against the dollar since it was introduced in 1999, according to the Associated Press. The dollar also fell against the British pound and Japanese yen.

Others thought the bailout would stabilize the U.S. economy, and that would increase oil demand.

"It could be perceived that way, that demand is back," says trader Marshall. "But that's too subtle to do that much (to oil prices) in one day."