Sept. 22 (Bloomberg) -- Crude oil climbed more than $25 a barrel, the biggest gain ever, as traders scrambled to unwind positions on the October contract's last day of trading. The more-active November contract rose $6.62.

“This looks like a squeeze play,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``All of the contracts are up, but nothing like October. This is the last day of trading and someone is scrambling to guarantee supply.''

Crude oil for October delivery rose $16.37, or 17 percent, to settle at $120.92 a barrel at 2:46 p.m. on the New York Mercantile Exchange. It was the highest settlement price since Aug. 21. Futures for November delivery rose 6.4 percent to settle at $109.37 a barrel.

Prices climbed today as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back. In a squeeze a trader has gone short by selling contracts hoping the price will decline. In the last days before the contract expires the trader must buy back the same number of futures or be forced to deliver the underlying oil.

``I don't think there's any doubt that's the indication of a huge squeeze,'' said Craig Pirrong, director of energy markets for the University of Houston's Global Energy Management Institute. ``It's just stunning this could happen'' given the recent scrutiny in Congress and among U.S. regulators concerning the crude oil markets, he said.

`Yawning Gap'

``It's a very small pool playing in this market right now, and that's why you're seeing those massive differentials'' between the October and November contracts, said David Kirsch, an energy markets analyst at PFC Energy in Washington. ``Somebody did place a wrong bet and is trying to cover that position.''

``The overarching factor is that the October futures contract expires today,'' said Ryan Oatman, an analyst at SunTrust Robinson Humphrey in Houston. ``This is a classic short squeeze. What lead up to it was a strong euro, up on concerns U.S. government actions will ultimately result in a greater budget deficit, higher inflation and a weaker dollar.''

Investors looking to hedge against the dollar's decline earlier this year have helped lead oil, gold, corn and gasoline to records. Oil rose as high as $130 a barrel, up from $104.55 on Sept. 19, as the dollar dropped on concern that a U.S. proposal to buy $700 billion of troubled assets from financial firms will deepen the budget deficit.

The dollar declined 2.4 percent to $1.4817 per euro, from $1.4466 on Sept. 19. It touched $1.4818, the weakest level since Aug. 22.

Hard Assets

``Gold, silver, oil, copper, just about any hard asset, is looking good at this point,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``With the dollar down and stocks getting hit, commodities look like a safe play.''

Oil has risen 33 percent since Sept. 16 as lawmakers pledged fast consideration of the Treasury's plan to buy devalued mortgage-related securities.

``There's a flight to quality and the energy markets are benefiting,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``The dollar is down again and investors are fleeing to commodities. We are back to the cycle that pushed prices to records earlier this year.''

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Sept. 16, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 19,379 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report.

Gasoline

Gasoline for October delivery increased 10.41 cents, or 4 percent, to settle at $2.7038 a gallon in New York. Heating oil rose 14.52 cents, or 5 percent, to settle at $3.043, the biggest single-session gain since June 6.

Regular gasoline, averaged nationwide, declined 1.8 cents to $3.739 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

Crude oil prices are ``too high'' because the global economic slowdown may spread and cut consumption, the International Energy Agency's deputy executive director said.

``The economic slowdown in the U.S., Europe hasn't gotten into China, India much, but at some point you have to presume it will,'' William Ramsay said in an interview in Bangkok today.

The Paris-based IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo.

Brent crude oil for November settlement rose $6.43, or 6.5 percent, to settle at $106.04 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: September 22, 2008 15:53 EDT