(EnergyAsia, September 22, Monday) — US crude futures staged another massive rally last Friday to close well above the $100-per-barrel mark once again.

As news filtered through of the US government preparing a $700-billion rescue of Wall Street, investors returned to push oil up more than $6.67 a barrel to close at $104.55.

Last week began with news that investment bank Lehman Brothers had filed for bankruptcy, insurer AIG was taken over by the US government while Merrill Lynch was sold off Bank of America.

Then, Washington announced plans to set aside $700 billion to buy up troubled mortgages. That helped ignite the oil markets as the US government will most likely fund the bail out through more borrowings and monetary easing, setting the stage for runaway inflation.

Oil began the week slumped to a seven-month low of US$90.51 a barrel.

Lehman was a major player in the oil derivatives markets while AIG had a commodities fund. Most Wall Street companies have huge exposure to oil. Their financial troubles could well have forced many of them to liquidate their long positions, causing oil prices to plunge from their July 11 record high of $147.27.

While the US economy will take some time to recover, the rest of the world continue to use up oil and other commodities at a rising rate.

OPEC and the IEA have been forced to slash their world oil demand forecasts, but they are still predicting demand to grow by more than one million b/d in these difficult times. No one is forecasting a decline. When the US economy recovers and starts humming again, it will add to that demand growth.