Oil price reverses course in trading, ends Monday up $2.47 US

Oil prices ended a turbulent Monday up almost $2.50 US a barrel as increased confidence regarding the possibility of more U.S. financial aid added to growing unease about the prospects for a number of oil-producing nations.

A barrel of oil for February delivery cost $48.41 US at the close of trading on the New York Mercantile Exchange. That represented an increase of $2.47, or more than five per cent, in the session.

Monday's closing figure also meant that crude prices have risen 38 per cent since the close of trading on Dec. 24.

Oil values were pushed higher on positive news Monday that president-elect Barack Obama was set to introduce a $300 billion package of tax cuts and spending proposals aimed at reviving an economy mired in recession.

Oil prices also popped up as commodity watchers assessed the Israel-Gaza conflict, the Ukrainian natural gas dispute with Russia, and recent tension in Nigeria as factors that would reduce crude supplies.

Washington's aid proposals increase the growing feeling that the U.S. economy has hit rock bottom and is headed for a recovery.

Analysts also feel that swirling international tension will result in a short-term rise in the commodity's price.

"Would we really be concerned about these geopolitical issues as it relates to oil if we didn't think that the demand was going to improve somewhat in the coming year? Probably not," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Political instability boosts prices

Three international situations have prompted analysts to take the view that oil prices will rise in the coming weeks.

In the Middle East, Israel's December military action against the Hamas organization in the Gaza Strip has analysts speculating about further tension between other Middle Eastern governments, many of whom produce oil, and the Israeli government.

In addition, a contract dispute has led to the government-owned energy company in Russia cutting gas supplies to Ukraine. Those reductions in turn have resulted in less natural gas flowing to the Czech Republic and Turkey with the possibility of other countries getting caught in the Russian-Ukrainian crossfire.

Finally, a separatist group in Nigeria has threatened to bomb that country's main pipelines, a move that could limit oil supplies from the region.

U.S. dollar safe haven?

The same international disputes, however, also have experts believing that the American dollar is a better safe haven than the euro, British pound or some other currency.

The U.S. dollar rose more than two per cent against the euro in Monday trading.

Since oil is priced in U.S. dollars, a rising greenback means you can buy the same barrel of black gold for fewer American dollars, essentially cutting oil prices.

In addition, investors often sell oil, gold or another commodity if they believe the value of the U.S. currency is set to rise. Many analysts believe the currency should rise against the overvalued euro in coming months.

With files from the Canadian Press