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Crude oil trades lower after biggest one-day gain

business Updated: Sep 23, 2008 09:58 IST

AFP
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Crude oil traded lower in Asia on Tuesday after the benchmark New York futures contract soared more than $16 for its biggest one-day gain ever.

The massive price surge stemmed partly from hopes that a US plan to buy tainted mortgage-related assets will save the global economy from collapse, dealers said.

New York's main contract, light sweet crude for November delivery, eased 48 cents to $108.89 a barrel.

The contract for October delivery had soared $16.37 a barrel to $120.92 at the close of floor trading on the New York Mercantile Exchange on Monday.

The rally was partly driven by technical factors linked to the October contract's expiration at the close of trade, analysts said.

Monday's surge exceeded the last record one-day rise of $10.75 on June 6.

Brent North Sea crude for November delivery was 52 cents lower at $105.52 a barrel after rising $6.43 a barrel on Monday in London.

Oil prices had fallen heavily from record levels above $147 in early July, on worries the global economy is slowing and causing a dent in energy demand.

Clarence Chu, a trader with energy brokerage Hudson Capital Group in Singapore, said he expects prices to remain above 100 dollars for the short term.

"The market fundamental is still pretty strong. While the (global) economy is not doing well... there's still a lot of factors (supporting prices)," he said, citing continuing tight energy supplies and geopolitical tensions.

"I can't see in the next few weeks prices going back down to 90... but prices tend to be news-driven and a lot of times people tend to over-react."

Oil prices late last week got a boost from news of a massive US plan to bail out the sinking financial sector following the collapse of investment bank Lehman Brothers and the government's loan to insurance giant AIG.

Analysts said the 700 billion-dollar rescue package has eased fears that the world's largest economy was on the brink of collapse.

But Chu noted the plan has to go through Congress and that Republican and Democratic legislators have said they wanted some changes.

"It won't be passed right away... but I think it will go through," he said.

WTRG Economics analyst James Williams said: "The uncertainty over the bailout plan will probably dominate oil prices for most of the week. The results might be more palatable to the market if we didn't have to watch Congress make the sausage."