Oil continues to push higher on weakening dollar as investors eye OPEC meeting

Oil pushes higher on weakening US dollar

Oil prices pushed higher for a second straight day Wednesday on continued weakening of the U.S. dollar and as investors awaited the outcome of an OPEC meeting that is expected to result in no change in production levels.

Benchmark crude for October delivery rose 27 cents to $71.37 a barrel in afternon trading on the New York Mercantile Exchange after topping $72 earlier in the session.

On Tuesday, the contract jumped $3.08 to settle at $71.10 as the dollar fell to a low for the year against the euro.

Because crude is priced in the U.S. currency, it essentially becomes cheaper when the dollar falls.

“This is all about the U.S. dollar,” Jim Ritterbusch of Ritterbusch and Associates said of the rising price of oil. “As the dollar stays weak, oil goes up.”

The dollar fell to its lowest level since last September against a basket of six major world currencies that includes the euro, yen, Canadian dollar, British pound, Swedish krona and Swiss franc.

Ministers of the Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, seemed to be satisfied with current prices for crude. Instead, this week’s meeting in Vienna is more about persuading members not to sell more oil than the quotas permit.

Prices are about twice their levels from December, when OPEC announced its record 4.2 million barrel per day cut from September 2008 levels. The price rally has been welcome news for cash-hungry member governments, but also a temptation to sell more oil.

Platts, the energy information arm of McGraw-Hill Cos., said compliance with those cuts announced in December has been declining since April. The latest estimates show that the 11 OPEC members bound by quotas overproduced their 24.85 million barrel per day target by about 1.4 million barrels a day, according to Platts.

Kuwait’s oil minister, Sheik Ahmed Al Abullah Al Sabah, said OPEC’s markets monitoring committee would suggest to the group that output targets be held steady.

Even as oil prices have risen, demand for crude has continued to remain weak.

Gasoline consumption for the week ended Friday fell 2.4 percent from a year ago after Hurricane Gustav barreled into the U.S. along the Texas-Louisiana line and remains flat year to date compared with 2008, according to the MasterCard SpendingPulse report issued Wednesday.

MasterCard’s report is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and check.

Investors also are awaiting key data on Thursday that could drive prices for the rest of the week.

The Paris-based International Energy Agency will release its monthly report on global oil demand followed by the U.S. Energy Information Administration’s weekly inventory data.

Analysts expect a decline in crude and gasoline stocks, but are looking for rise in distillates stocks used to make diesel fuel and heating oil, according to Platts, the energy information arm of McGraw-Hill Cos.

Prices at the pump fell 0.5 cents overnight to a national average of $2.573, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are now 7.2 cents below where they were a month ago and $1.079 below the year ago average.

In other Nymex trading, gasoline for October delivery was up 0.33 cents to $1.8322 a gallon while heating oil rose 1.22 cents to $1.7947 a gallon. Natural gas rose 4.4 cents to $2.851 per 1,000 cubic feet.

In London, Brent crude was up 91 cents to $70.33 on the ICE Futures exchange.

Associated Press Writers Pablo Gorondi in Budapest, Hungary, Alex Kennedy in Singapore and Tarek El-Tablawy in Vienna and Tali Arbel in New York contributed to this report.