In the London market, oil prices had risen to above $83 a barrel on September 28 and closed at an all time high as fund buying, spurred by a weak dollar, provided support. US crude rose to $83.27, after gaining $2.58 or 3.24 per cent in the previous session.

The weakening US dollar is perhaps the key driver of this. The dollar hit an all-time low against a basket of currencies for the second consecutive day on September 28, pressured by worries about the health of the US economy and likelihood of more interest rate cuts.

The weak dollar, which can strengthen the nominal values of commodities traded in the currency, also boosted metals. Continued robust demand in the United States and other consumer nations could drain world stockpiles just as cold weather settles in the northern hemisphere. Persistent fears of supply disruptions during the rest of the hurricane season were also supporting gains.

Meanwhile, Tropical Storm Lorenzo strengthened into a hurricane and slammed ashore early September 28, along one of Mexico’s oil producing regions, the US National Hurricane Centre said.

The Gulf of Mexico is a leading oil-producing region for the United States and Mexico and investors are worried that, during the long Atlantic hurricane season that ends in November, a storm will damage oil rigs and other infrastructure.

Oil prices fell sharply toward $80 a barrel on October 1, as investors took profits from the near-record highs of last week and weighed the threat of a deeper economic slowdown in the United States.

On October 4, world oil prices bounced back above $80 per barrel in New York reversing earlier losses caused by worries over economic growth and crude demand in the US. New York’s main futures contract, light sweet crude for delivery in November, won back 35 cents to $80.29 per barrel.

In London, the price of Brent North Sea crude for delivery in November regained 56 cents to $77.75 per barrel.

Oil prices have surged more than 30 per cent this year, to an all-time high of $83.90 in late September, on expectations of a supply shortfall in the fourth quarter as heating demand peaks in the Northern Hemisphere. But traders, eyeing a credit crunch in the United States and Europe that is showing signs of slowing economic growth, have pushed down the price to take profits.

Apart from a weak dollar, expectations of tightening fuel supplies heading into the northern winter and the threat of supply disruptions due to hurricanes would also continue to support prices in the near term.

The Organisation of the Petroleum Exporting Countries agreed last month to boost production by 500,000 barrels per day to soothe consumer concerns over high prices and tight supplies. But oil has traded near $80 for the past three weeks and OPEC is reluctant to promise more oil just yet.

Earlier October, oil prices fell sharply towards $80 a barrel, as investors took profits from the near record highs of the preceding week and weighed the threat of a deeper economic slowdown in the US. In the New York market US, crude settled down $1.42 to $80.24 a barrel after sliding as low as $79.55 earlier in the day.

Opec’s latest production quotas reveal that Saudi Arabia will be primarily responsible for bringing new barrels to the market, raising questions about how much spare capacity the 12-member group really has as fears of a supply crunch send crude oil prices to record highs.

The Opec agreed earlier this month to raise output by 500,000 barrels a day starting November 1. The new output ceilings for the 10 Opec members subject to quotas — Iran and Angola are excluded — appear to be more closely in line with what countries have actually been producing in recent years.

The new quota levels, when compared to Opec’s most recent output figures, show that Saudi Arabia will be expected to add more than 300,000 of the 500,000 new barrels that are supposed to arrive in the market. It was producing 8.6 million barrels a day in August, while its new allocation is about 8.9 million.

The Paris-based International Energy Agency said in its most recent monthly oil market report that usable spare capacity, mostly held by Saudi Arabia, is some 2.7 million barrels a day, though this is expected to fall this winter. The agency said around 1.3 million barrels a day of new Opec capacity may be added by the end of next year.

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