Oil jumps 4 percent, bank plan spurs global rally
NEW YORK (Reuters) - Oil prices rose more than 4 percent on Monday as global markets rallied after governments launched bailout schemes to shore up banks.
Britain, Germany, France, Italy and other European governments all announced rescue packages to stave off the global financial crisis, while U.S. Treasury Secretary Henry Paulson said Washington was developing plans to buy equity in financial institutions.
U.S. crude settled up $3.49 to $81.19 a barrel, after concerns about the effect of the financial crisis on demand and a flight of investors into safer havens sent prices to the lowest level since September 10, 2007, on Friday.
London Brent crude rose $3.37 to settle at $77.46 barrel.
U.S. stocks surged on Monday, following their worst week ever, with the Dow Jones industrial average .DJI and the Standard & Poor's 500 Index .SPX up more than 6 percent in afternoon activity.
"I think the bank bailout packages may have stabilized financial markets and we're just following them higher," said Tom Bentz of BNP Paribas Commodity Futures Inc.
"The dollar is weaker against the euro as well, and the Saudis cut November oil shipments to Europe."
Investors rushed into oil and other commodities this year as a hedge against the weak dollar and inflation, before slowing fuel demand in the United States and other developed economies knocked crude from record highs above $147 set in July.
The drop in crude prices has prompted some members of the Organization of Petroleum Exporting Countries to call for a reduction in production levels when the cartel holds an emergency meeting on November 18.
Iraq's Oil Minister Hussain al-Shahristani said on Monday OPEC will consider cutting output if the world does not need its oil.
"There has been a reduction in demand and the current production of OPEC is more than the market can absorb," he said.
Top exporter Saudi Arabia -- OPEC's most influential member -- cut November supplies to one major European refiner, according to a trade source, but told major Asian refiners shipments would not be changed.
Goldman Sachs, a long-standing commodity bull, became a near-term bear on Monday after conceding that global financial turmoil would take a far bigger toll on demand and that oil prices could hit $50 if the crisis deepened.
"We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," Goldman's commodity markets research team said.
The bank cut its year-end U.S. crude oil target to $70 a barrel, down from a previous forecast of $115 a barrel, and slashed its average 2009 forecast by a third to $86 a barrel.
(Additional reporting by Jane Merriman in London and Fayen Wong in Perth; Editing by Christian Wiessner)
