NEW YORK (AFP) –
Oil prices climbed Monday to their highest levels since late 2008 in tandem with a world stock market rally on a US government plan to rid ailing banks of their toxic assets.
New York's main futures contract, light sweet crude for delivery in May, bounced to 54.05 dollars a barrel, the highest point since November, before ending 1.73 dollars higher from Friday's close to 53.80 dollars.
London's Brent North Sea crude for May jumped 2.25 dollars to settle at 53.47 dollars a barrel. Earlier it struck 53.86 dollars -- also the highest point since November.
Global stock markets rallied Monday as the United States launched a 500-billion-dollar (366-billion-euro) plan to purge banks of toxic assets.
Traders said investors eyed the oil market as another avenue to whet their appetite for risk amid hopes that a rehabilitated banking sector would help fuel an economic recovery of the United States, the biggest energy consumer.
"People are making bets that we will have the banking system partially fixed and have credit start flowing, that the stimulus that is now undergoing in the US will be enough to lift ourselves," said Bart Melek of BMO Capital Markets.
"And that essentially means that at some point late in the year we will probably have better demand for oil in the US," Melek said.
The US Treasury unveiled a long-awaited plan Monday to buy up toxic assets clogging the financial system using government funds, loans to investors and guarantees to attract private capital.
The cornerstone of the plan is a "Public-Private Investment Program for Legacy Assets" funded with 75 to 100 billion dollars from the government.
Officials said this approach would "generate 500 billion dollars in purchasing power" and could expand to one trillion dollars.
The plan is key to helping the ailing banking system recover from massive losses suffered in the US real estate meltdown and stabilizing the economy.
The move came after Federal Reserve chief Ben Bernanke announced last week a plan to buy up to 300 billion dollars in Treasury bonds and an additional 850 billion in other debt in a bid to cut lending costs and fire up the moribund economy.
Last month, US President Barack Obama's administration launched a nearly 800 billion dollar stimulus plan a month ago to jolt the world's largest economy from prolonged recession.
Melek said that aggressive moves to revive the US economy coupled with "fairly decent production cuts" from the OPEC cartel could help boost the oil market.
"The bulls are back in the fast lane," said Phil Flynn of Alaron Trading.
He said prices recovery also got a boost from Bernanke's plan to virtually inject another trillion dollars into the financial system to prop up the economy.
"He has taken extra ordinary action to lift oil out of its rather ordinary demand slump," Flynn said.
Despite rising Monday, oil prices have tumbled from their record peaks of above 147 dollars a barrel reached in July 2008, as the global economic downturn has ravaged energy demand.
In a bid to boost prices, the Organization of the Petroleum Exporting Countries, which pumps 40 percent of world crude, has pledged to slash 4.2 million barrels of oil a day since September.
However, the 12-nation cartel left output unchanged at a key meeting in Vienna earlier this month.
OPEC's call for compliance could meanwhile undermine a global economic recovery because oil prices could spike higher as a result, energy consultancy CGES said Monday.
Questions remain about compliance because some cash-strapped member nations do not want to lose precious income.