SAN FRANCISCO (MarketWatch) -- Crude-oil futures leaped more than $16 a barrel Monday to score their biggest one-day gain in dollar terms since 1984 -- when crude began trading on the New York Mercantile Exchange.

Crude futures rallied Monday to a high of $130 a barrel -- their highest intraday level in two months -- buoyed by a steep drop in the U.S. dollar and speculation that the Bush administration's proposal to stabilize the financial sector might help revive economic growth.

Trading was halted for five minutes after the October crude contract reached the daily price-movement limit of $10 per barrel. Under trading rules, the price-change limit is increased by another $10.

Crude for October delivery rose $16.37, or 15.7%, to close at $120.92 a barrel on the New York Mercantile Exchange.

The gain surpassed the previous price-gain record of $10.75, registered on June 6 of this year. The highest percentage rise in a single day was seen on Jan. 3, 1994, at 20.9%, according to FactSet.

“ Oil's move 'underscores that energy is the only place to expect outsized profits these days and the money is flocking into that market.' ” — Neal Ryan, Ryan Oil & Gas Parnters

"I never expected a move that big in one day without some real news, but I'm past the point of saying there are any absolutes in a market like this one we're in presently," said Neal Ryan, a managing partner at Ryan Oil & Gas Partners. The move "underscores that energy is the only place to expect outsized profits these days and the money is flocking into that market."

The October contract expired on Nymex at the end of trading Monday, a factor that increased volatility.

"The stocks at Cushing [Okla.], which is the delivery point for Nymex, will be low because they have been drawn down because of the hurricane," said James Williams, an economist at WTRG Economics. "If you are short on the last day of trading you have to either buy back the contract or make physical delivery and it is probably difficult to get spot oil at Cushing to make physical delivery."

November crude, the new front-month contract, was up $6.62 on Nymex, closing at $109.37.

Fear over the U.S. dollar also contributed to oil's gains Monday.

"To the extent the current run-up reflects [that] the dollar is cheap and weak and Wall Street is making it so, then the kick upwards in [the oil] price makes a certain amount of sense," said Anthony Sabino, a professor of law at St. John's University whose legal practice includes oil and gas law.

"Nevertheless, a weak dollar cannot resuscitate demand, so eventually no matter how weak the dollar, how troubled Wall Street is, demand will pull [the per-barrel] price down, down, down," said Sabino. See Commodities Corner.

Rescue plan spurs dollar drop

On the currency markets, the dollar fell sharply against rivals, weighed down by the U.S. government's bailout plan for the financial sector.

The dollar index DXY, +0.08% , a measure of the greenback against a trade-weighted basket of currencies, dropped sharply to 75.944, from 77.663 late Friday in North American trading. See Currencies.

"The hundreds of billions of dollars being pumped into the system is inherently inflationary," said Sean Brodrick, a natural-resources analyst at MoneyandMarkets.com. "That, plus a belief that the federal bailout will boost the economy in the fourth quarter, is putting a floor under oil prices."

The Bush administration is urging speedy passage of its $700 billion proposal in Congress, but Democratic leaders are countering with oversight and additional measures that could complicate efforts for a swift rescue being implemented. See full story.

"Many are hoping that the plans, which still have to be passed by Congress, will help stabilize financial markets and rescue the U.S. economy from further gloom, thus supporting U.S. oil demand growth," said Michael Davies, an analyst at Sucden Research, in a note.

"However, these plans are certainly not guaranteed to stop the chaos in financial markets and the longer-term impact of recent events on the U.S. and world economy may not even start to be felt for some time," Davies said.

Crude's latest gain followed a sharp move on Friday, when the October contract jumped $6.67, or 6.8%. to $104.55 a barrel on Nymex. It gained 3.3% overall in a highly volatile week, during which it traded between a low of $90.80 and a high of $105.25.

Bigger view

"Because markets are now going to be underwritten by the U.S. government to ensure stability, it's time to focus on what are some of the longer-term trends -- one being that we've got growing energy usage across the globe and flat to declining production," said Ryan.

Oil prices "shouldn't bounce right back up to levels seen three months ago, but the market fell too far, too fast and oil prices moving back to $110-$120 area are going to turn out to be the correct pricing level in the market," he said in emailed comments.

On Nymex Monday, prices for petroleum products headed higher alongside oil.

November reformulated gasoline rose 10.4 cents to end at $2.7038 a gallon, and October heating oil gained 14.5 cents to end at $3.043 a gallon.

The average U.S. retail price for a gallon of regular gasoline fell to $3.739 Monday from $3.757 on Sunday, according to AAA's Daily Fuel Gauge Report. A month ago, the price was at $3.692.

The latest figures on U.S. refining activity showed a steep drop for the week ended Sept. 12 as energy facilities in the Gulf of Mexico continued to recover from the hurricanes Gustav and Ike.

About 76.6% of oil production and 65.5% of the natural-gas output in the Gulf are still shut in as of Monday, according to the Minerals Management Service.

"The vast majority of production is still offline," said Ryan. "That'll end up manifesting itself in the prices down the road -- not today."

An area of low pressure over Puerto Rico could become the next named system of the 2008 Atlantic hurricane season, AccuWeather.com reported Monday. If the storm develops, it will be named Kyle.

In the meantime, there are signs that Saudi Arabia is cutting output in response to slowing demand, said Phil Flynn, vice president at Alaron Trading.

Citing industry sources, Reuters reported that the Saudis had cut oil supplies to international oil majors and U.S. refiners since the start of September and that they cut back even before the oil-producer agreement earlier this month to reduce production.

Flawed thinking

Sabino referred to the rising oil prices as "somewhat of a flight to commodities."

"But this is also severely flawed, because it does not account for the to-date drop in demand, with more dropping of demand to follow because of Wall Street's woes," he said.

U.S. stocks headed lower Monday as the market mulled the details of the government bail-out plan. See Market Snapshot.

For oil, "there is a wholly illogical disconnect here," said Sabino. "Since Wall Street is so down and money is so tight, logic says demand will continue to drop like a stone, so price should be back at $90 and heading south to $80."

Elsewhere on Nymex, natural gas traded higher. October natural-gas futures rose by 12.7 cents to close at $7.658 per million British thermal units. That's after finishing last week with a 2.2% gain.

Tracking the commodities market as a whole, the Reuters/Jefferies CRB Index CRB, -1.01% , a benchmark gauging the prices of major commodities, rose by 3.9%.

In other news, gold futures closed with a gain of $44.30 an ounce. See Metals Stocks.

Corn futures also rallied on the heels of the weaker U.S. dollar. See Food Futures.