Oil price jumps $2 amid commodities rally

OIL RECOVERY: Prices rose on Tuesday as hopes of a global economic recovery rose. (Getty Images)

Oil rose more than $2 on Tuesday amid a broad-based commodities rally, extending a 4 percent gain from the previous session as government moves to rescue banks raised hopes for an economic recovery.

Global markets jumped, with Wall Street staging its biggest one-day gain ever and Japan's Nikkei up more than 12 percent on Tuesday, after governments around the world bet hundreds of billions of dollars to shore up ailing banks.

US crude rose $2.07 to $83.26 a barrel early Tuesday while London Brent crude climbed $1.58 to $79.04, as concerns on the impact of the financial crisis on oil demand eased.

Oil prices had fallen to their lowest level since Sept. 10, 2007 on Friday as investors fled into safer assets.

"The current bounce is due to expectations that the economy will recover," said Tetsu Emori, fund manager at Astmax Co Ltd.

The US government is set to buy $250 billion in equity stakes in banks, a source briefed on the situation said, while Britain, Germany, France and other European countries pledged more than 1 trillion euros ($1.36 trillion) for bank guarantees and equity stakes.

The bailout schemes saw the US dollar fall against the euro, further boosting dollar-denominated oil prices.

Investors rushed into oil and other commodities this year as a hedge against the weak dollar and inflation, before worries about slowing demand in the United States and other developed countries knocked crude off its record above $147 set in July.

Commodities bull Goldman Sachs on Monday cut its year-end US crude oil target to $70 a barrel, down from a previous forecast of $115, slashed its average 2009 forecast by a third to $86, and warned that prices could hit $50 if the current financial crisis deepened.

With the retreat in crude prices, some members of the Organisation of the Petroleum Exporting Countries (OPEC) had called for a cut in production levels when the cartel holds an emergency meeting on Nov. 18.

Iraq's Oil Minister Hussain al-Shahristani said on Monday that OPEC would consider reducing output if the world does not need its oil.

Top exporter Saudi Arabia cut November supplies to one major European refiner, according to a trade source, but told major Asian refiners on Monday that shipments would not be changed. (Reuters)

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