Oil jumps to $94 after global markets' rally on AIG bail out

U.S. light crude for October delivery was up $2.70 at $93.85 a barrel at 1044 GMT after a session high of $95.00.

On Tuesday, it had fallen to a seven-month low in a broad cross-market sell-off.

London Brent crude for November delivery was $2.48 up at $91.70.

Oil has fallen more than $10 in the past two days alongside a plunge in global financial markets, following the bankruptcy of U.S. investment bank Lehman Brothers and fears over the survival of global financial services group AIG.

"I think it was a flight of capital out of the futures markets and now we are coming back to fundamentals," said Simon Wardell of Global Insight in London.

"I think a lot of that (investor) cash is out of commodities and will stay out," said Wardell. "We've had outages in the Gulf of Mexico, and I think a lot of that was overlooked," he said.

Fresh attacks on Nigerian oil installations and supply disruptions in the United States after Hurricane Ike provided some support to the market.

These had been largely ignored earlier this week as investors focused on the credit crunch.

Oil is down by more than a third from a record peak of $147.27 on July 11, partly due to a reduction in demand from top energy consumer the United States, where economic growth is flagging.

The fall accelerated this week because of financial market fallout from the collapse of Lehman and AIG's troubles.

"Everyone feared there would be a big meltdown in the financial sector that would affect the economy. Now they are hoping we'll just get through the AIG situation and that may be lifting the market," said Anthony Nunan, a risk management executive at Tokyo-based Mitsubishi Corp.

AIG's problems and Lehman Brothers' bankruptcy had triggered an investor flight to safe haven assets such as government bonds and gold.

Gold climbed on Wednesday in line with a relief rally across the commodities spectrum after the rescue of AIG.

Goldman Sachs, until now the most bullish investment bank on oil prices, cut its average 2009 U.S. crude oil price forecast by $25 to $123 a barrel.

"We stand by our bullish view on oil, but just think it will now take longer to get to our previous price target," the bank said.

The market will focus later in the session on latest weekly inventory data from the U.S. Energy Information Administration that could show some of the impact on U.S. fuel supplies from Hurricanes Gustav and Ike.

Crude oil supplies are forecast to have fallen by 3.8 million barrels last week, gasoline by 3.8 million and distillates by 1.9 million.