Oil prices swung rapidly higher yesterday as Hurricane Gustav threatened major oil operations in the Gulf of Mexico.After falling close to $112 per barrel in overnight trading, light, sweet crude for October delivery spiked $2.33 to $117.44 a barrel on the New York Mercantile Exchange, a $5 swing. In London, October Brent crude rose 1 cent to $114.51 a barrel on the ICE Futures exchange.
Already adding support to oil prices was Russia's recognition of independence for two breakaway provinces in Georgia, which is likely to enflame tensions with the west.
Oil prices switched directions several times during Tuesday's session, with the dollar swings seen as mostly responsible for the fluctuations.
"The Dollar Index ... has shown that it can at time override the oil fundamentals ... and will probably dominate until Gustav defines a more definitive path," said Olivier Jakob of Petromatrix in Switzerland. Oil prices typically rise when the dollar falls, as investors buy commodities as a hedge against inflation and weakness in the U.S. currency.
Although the dollar was still stronger Tuesday than Monday, by the afternoon in Europe it gave back some of its gains from earlier in the session against the euro. The euro had fallen below $1.46, a six-month low, but later climbed back to $1.4635. At the same time, the dollar also lost some ground within the session against the Japanese yen, to 109.55 yen compared with 109.78 earlier, but still up from 109.35 on Monday.