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Oil prices jumped more than US$25 a barrel yesterday - their biggest one-day price jump - but economists say they could fall just as quickly.
Petrol companies are playing a waiting game to see how sustainable the price is.
The jump follows anxiety over the American Government's US$700 billion plan to buy bad mortgage debt to stabilise the financial system.
Light, sweet crude for October delivery jumped as much as US$25.45 to US$130 a barrel on the New York Mercantile Exchange before falling back to settle at US$120.92, up US$16.37.
The rally, which shattered crude's previous one-day price jump record of US$10.75, set on June 6, showed the intensity of emotion in the market.
Crude has gained about US$30 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below US$100. Crude is within striking distance of its record of US$147.27, reached in July.
UBS senior economist Robin Clements said "peculiar circumstances" led to the jump. These included the American bailout, a short squeeze with Monday being the last trading day for the October contract and supply issues because refineries were not fully operational after Hurricane Ike.
"As we're seeing in various places - equities, currencies, what have you, there is an intense degree of volatility so I don't think it's time to be jumping the gun. I think we have to wait a few days to see how the dust settles.
"Much of it is market-related technical ... The November contract didn't jump by anywhere as much, it was only six dollars which is not out of the range. We've seen plus and minus five or six dollars over recent weeks, day to day. There's a degree of technical to what's going on so I think it would be best to wait a few days to see how things pan out."
If the price does stay, the most commonly used 91 octane could go over $2 a litre again, Mr Clements said. It dropped last week to $1.95 a litre. Fuel prices passed the $2 mark when 95 octane petrol topped it on May 19. Three days later 91 octane followed suit.
Mobil spokesman Alan Bailey said it was hard to know what would happen with his company's petrol prices.
BP spokeswoman Diana Stretch said: "We don't react to one day's trading and that is all this is at the moment. We need to see what happens in the next few days."
- NZPA
