Oil prices soared nearly 16 percent to over $120 a barrel on Monday -- the biggest one-day gain on record -- in a rally sparked by the expiry of the front-month futures contract and weakness in the U.S. dollar.

The gains extend oil's climb from a low near $90 last week after the United States unveiled a sweeping rescue plan for its battered financial sector, improving the outlook for energy demand in the world's biggest consumer nation.

U.S. crude for October delivery, which expires on Monday, settled up $16.37, or 15.7 percent, at $120.92 per barrel. The contract for delivery in November, which was much more actively traded, was up only $6.62 at $109.37.

London Brent crude settled up $6.43 at $106.04.

"The market went crazy here and it looks like the weakness of the dollar was a fuel for the sharp price increase. NYMEX October crude was also expiring and that provoked short-covering," said Amanda Kurzendoerfer, commodities analyst at Summit Energy in Louisville, Kentucky.

The U.S. dollar fell 2 percent against the euro on Monday, weighed down by worries about the fiscal impact of the U.S. government's $700 billion bailout plan aimed at addressing the global credit crisis.

A weaker dollar boosts the purchasing power of commodity buyers using other currencies.

The U.S. government measures to rescue the financial system also have restored confidence that U.S. fuel demand may hold up to economic turmoil better than initially feared.