As supply concerns intensified and the dollar weakened further, oil prices have peaked to new highs, rising above US$130 a barrel on the New York Mercantile Exchange. July Brent crude settled at US$128.32 a barrel on the ICE Futures exchange in London.
Commodities such as oil are a hedge against inflation particularly when the dollar is weaker. A weak dollar also makes oil less expensive to buyers dealing in other currencies. Particularly strong demand for diesel has been witnessed in China, where power plants in some areas are running short of coal and earthquake-hit regions are relying on diesel generators for power. The country is also ramping up diesel imports ahead of the Olympics driving up prices. A statement by OPEC that it will not boost output before its September meeting has jolted the US market. Markets in USA will see improved demand for gasoline and diesel as the summer driving season begins.