Oil closes up $16.37 a barrel, a record rise

Oil prices spiked more than $25 a barrel during midday trading yesterday before receding to close up $16.37, the biggest one-day increase since oil began trading on the New York Mercantile Exchange in 1984.

Analysts blamed anxiety over the government's $700 billion bailout plan for financial firms, a weak dollar, and the final day of trading for October oil contracts.

"We're in uncharted territory right now," said Jim Burkhard, a managing director at Cambridge Energy Research Associates, a market analysis firm. "Is the bailout going to stabilize and calm the waters, or will it not? That's the question right now facing all markets."

Crude for delivery next month jumped as much as $25.45 to $130 a barrel before settling at $120.92, a 15.7 percent increase.

The New York exchange temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased. The $16.37 increase shattered the previous one-day record for crude - $10.75, set on June 6.

Yesterday was also the last day to buy oil for October delivery, making the session even more frenzied, according to analysts. Burkhard said the spike was enough "to take your breath away."

Just last Tuesday, oil closed at $91.15 a barrel. Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted a steep two-month slide below $100 a barrel. At this rate, the record closing price of $145.29, reached in July, is within striking distance.

"We may not see a return to $150 oil, which is close to what we got in July, but the [recent] price drop has for now stopped," Burkhard said.

The November crude contract price closed at $109.37, up $6.62, a significant increase.

Phil Flynn, an analyst and oil trader with Alaron Trading Corp. in Chicago, said the surge in oil appeared to be the result of a large investment fund scrambling to cover its short positions, or bets that prices would fall.

"When people sense that someone is short, it's like blood on the streets. It just accelerates the rally," Flynn said.

Arthur Kinsman, a spokesman for AAA Southern New England, said the price increase caught him by surprise. AAA reported yesterday that the state's average gasoline price fell 6 cents a gallon in the past week to $3.56 - the same as before fears over Hurricane Ike caused Texas refineries to temporarily close. He wasn't sure what the crude oil price surge would mean in the near future for drivers.

"I think we're just going to have to watch the market," Kinsman said.

Several airlines said they won't immediately be affected by the increase, in part because they have long-term contracts to purchase fuel at a set price.

"Unless we know that it's part of a more definite trend, it's really impossible to evaluate it," said Ned Raynolds, spokesman for American Airlines, the world's largest carrier.

Airline stock prices suffered, however, with AMR Corp. leading the decliners. It fell 13.4 percent.

The Air Transport Association, an airline industry group, said the jump confirms beliefs that speculation is playing a role in driving up oil prices.

But Mary Novak, an energy economist with the Waltham forecasting firm Global Insight, said it could have been a blip caused by economic jitters combined with the end of the October oil delivery contract.

"We think and we're hopeful that it's really just a phenomena," Novak said.

Nicole C. Wong of the Globe staff contributed to this report. Material from Globe wire services also was used. Erin Ailworth can be reached at eailworth@globe.com.