Light, sweet crude for October delivery, which expires yesterday, was up US$16.37 to settle at US$120.92 a barrel, after rising as high as of US$130.00 per barrel on the New York Mercantile Exchange.

"The fact that oil experienced its biggest one day price spike ever has to do with a short squeeze of massive proportions taking place," Wall Street Strategies' senior research analyst Conley Turner told Xinhua.

"In fact, the approximately 20 percent move suggests that some institutions are on the hook for making a wrong bet on the direction of the commodity and massive unwinding is taking place," added the analyst.

Crude prices had tumbled from record highs of US$147.27 a barrel, which was set on July 11, weighed down by growing evidence that high energy costs and economic woes were curbing global demand.

Investors' concerns about the outlook of the US currency also push the prices higher.

The US dollar fell sharply yesterday as concerns grew that Treasury Secretary Henry Paulson's 700-billion-dollar rescue plan will further burden US finances.

The new rescue plan would increase the public debt limit to US$11.3 trillion from US$10.6 trillion. The jump in federal debt would be negative for the dollar.

The US dollar was lower against other major currencies yesterday. In Europe, the euro traded at 1.4689, up from 1.4470 late Friday in New York.

"It is clear that the US dollar had peaked in value some days ago and is now falling. Oil traders are pumping money into the commodity as the trade of choice now is to sell dollars and buy oil," said Turner.

In London, Brent North Sea crude for November climbed US$6.43 to settle at US$106.04 a barrel.