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Another Wall Street bailout boosts oil to $53

SHARE Another Wall Street bailout boosts oil to $53

SIOUX FALLS, S.D. — Oil prices jumped above $53 a barrel Monday with Wall Street on news that the U.S. government will bail out Citigroup.

Light, sweet crude for January delivery rose nearly 6 percent, or $2.94, to $52.87 a barrel on the New York Mercantile Exchange.

Phil Flynn, an analyst at Alaron Trading Corp., said oil initially seemed like it was heading downward, dropping to $48 overnight even amid talk about possible production cuts by OPEC.

News that the U.S. government will take a $20 billion stake in Citigroup and guarantee hundreds of billions of dollars in risky assets gave both the stock market and oil market a boost, but Flynn said it's likely a short-term bump and he doesn't think investors are betting that the market has hit bottom.

"What we've seen in the past on these bailouts is it does give oil a boost for a while and energy a boost for a while," he said. "But as time goes on, that stimulus sort of wears off and then we go back to focusing on supply and demand."

The Dow Jones industrial average rose 300 points Monday morning.

Oil futures have followed stock markets recently, using equities as a proxy for economic outlook and investor sentiment. Traders are also expressing confidence in President-elect Barack Obama's emerging economic team.

Obama plans to name New York Federal Reserve Bank President Timothy Geithner as treasury secretary, Lawrence Summers as director of the National Economic Council and New Mexico Gov. Bill Richardson as commerce secretary. Obama will be sworn in on January 20.

"The lack of clarity as to who exactly is in charge of steering the U.S. economy is really hurting the equity markets," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "So putting together the new team gives a bit of a reassurance to the market, even if Obama isn't president yet."

Gas prices continued to drop overnight, with the national average price for regular dropping about 2 cents to $1.908 a gallon, according to according to auto club AAA, the Oil Price Information Service and Wright Express. That is more than 80 cents gallon below what it was a month ago and more than $2 below where it was in July when prices peaked at $4.11 per gallon.

Investors are looking for signs the Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, may reduce output quotas. Venezuelan Oil Minister Rafael Ramirez said Sunday that OPEC should cut oil production by 1 million barrels per day at an informal meeting Nov. 29 meeting in Cairo.

The group, which cut output by 1.5 million barrels a day last month, will hold its next official meeting on Dec. 17.

"It's still a big question mark whether OPEC will make an additional cut at the Cairo meeting," Shum said. "Chances are better for a cut at the December meeting. Talk of a cut is providing some support for prices."

Analyst Olivier Jakob of Petromatrix in Switzerland agreed, saying that only the timing of the new OPEC output reduction was uncertain, not the cut itself.

"We have the feeling that OPEC is keeping all its options not really as to whether they will cut further but as to when they will announce it," Jakob said in a market report.

In other Nymex trading, gasoline futures rose 6.97 cents to $1.134 a gallon. Heating oil rose 8 cents to $1.78 a gallon while natural gas for December delivery jumped 22 cents to $6.70 per 1,000 cubic feet.

In London, January Brent crude rose $3.30 to $52.49 on the ICE Futures exchange.