Oil extended last week's massive gains and rose above $105 a barrel, on hopes that the US government's $700 billion rescue plan would restore stability in the financial system and support global energy demand.
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% to cap its biggest three-day rally in a decade.
Analysts said 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.
US light crude for October delivery rose $0.60 to $105.15 a barrel, 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% - biggest three-day surge since December 1998.
London Brent crude rose $1.03 to $100.64 on Monday.
“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.”
The Bush administration and Congress on Sunday ramped up talks on an unprecedented $700-billion bank bailout as they battled the clock to prevent further financial turmoil that risks hurtling the economy into a deep and damaging recession.
The news sparked a rally across equities markets in Asia, where Tokyo's Nikkei average rose 2.5% and Australia's benchmark S&P/ASX 200 index gained over 3%.
Oil prices remain sharply down from their peak above $147 a barrel in mid-July, pressured by mounting evidence that high energy costs and economic troubles are undercutting global fuel consumption.
Nippon Oil Corp, Japan's biggest oil refiner, said on Monday it has cut its crude oil refining volume for September by 240,000 kilolitres from its original plan to 3.22 million kl due to slow demand.
Oil's rise on Monday were also limited by news that Nigeria's main militant group had begun a unilateral ceasefire on Sunday after a week of clashes with the military and attacks on oil installations which cut output in Africa's top producer.
The week-long attack on oil facilities forced Shell to declare on Saturday a second force majeure on crude oil shipments from Nigeria.
Analysts said the restart of oil and gas production in US Gulf of Mexico as well as refineries in Texas city could also limit oil's gains.
About a quarter of US Gulf of Mexico natural gas output and 11% of oil production were back on line Friday as recovery from Hurricanes Gustav and Ike continued, the US Minerals Management Service said.
Eleven US oil refineries along the Gulf Coast with 2.202 million barrels per day in refining capacity were also back to normal operations as of Friday after being shut by recent hurricanes. (Reuters)