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With traders expressing concerns about potential supply disruptions stemming from rising tensions between the U.S. and Russia, the price of oil moved sharply higher on Thursday, adding to the increases that were seen in the two previous sessions.

In its first day as the front-month contract, crude for October delivery ended the session up $5.62 at $121.18 a barrel. While the price of oil reached an intraday high of $122.04 a barrel, it gave back some ground going into the close.

The continued price increase came as traders expressed concerns that Russia could cut off energy shipments to Western countries in response to rising tensions with the U.S. and other NATO countries.

Along with the animosity over Russia`s violent conflict with Georgia, the U.S. severely angered the Russians on Wednesday with announcement of its missile shield deal with Poland.

The price increase also came amid a notable decrease in the value of the U.S. dollar, which is pulling back well off its recent highs. After seeing modest strength on Wednesday, the U.S. dollar index has fallen by about 1 percent.

The drop in the value of the U.S. dollar comes following the release of some key economic data, including a report from the Conference Board showing a bigger than expected decrease in the leading economic indicators index.

Concerns about the upcoming OPEC meeting also contributed to the continued price increase, as Venezuela`s top oil official has said that he will ask the cartel to cuts its production quota at its next meeting on September 9th.

`If there is a trend or dynamic toward lower oil prices, Venezuela will consider the possibility of a cut in production,` said Rafael Ramirez, Venezuela`s Energy and Oil Minister. `This is the position that we will take at the next OPEC meeting.`

Ramirez said that the steep drop in oil prices that has been seen in recent weeks is proof that there is speculation in the market. He added that prices must be maintained at around $100 a barrel due to increased production costs.

With the increases in the past three sessions, the price of oil has moved well off the three-month closing low that it set on Monday, but it currently remains more than $25 a barrel below the record high of $147.27 a barrel set in mid-July.

Thursday, the National Bank of New Zealand said in its regional trends survey report that the economic activity shrunk during three months to June for the second consecutive quarter. According to the survey, the nationwide measure of economic activity eased 0.5% from March.

The number of regional economies expanding in the June quarter equaled the number of regions to retreat. Further, averaging the quarterly growth profile, eleven regions recorded an overall decline in economic activity over the first half of 2008, while Gisborne and West Coast recorded an increase. At the same time, the level of activity in the Nelson-Marlborough economy remained stable.

The bank said the annual average GDP growth, based on the composite index of activity, slowed to 0.8% for the nation as a whole in June. This was the lowest annual growth since 1999.

With traders digesting a mixed report on oil inventories, the price of oil saw considerable volatility over the course of the trading session on Wednesday before ending the day modestly above the unchanged line.

After reaching a high of $117.03 a barrel, the price of oil pulled back sharply following the release of the inventory report, falling to a low of $112.61 a barrel. Nonetheless, crude for September delivery moved back to the upside, closing up $0.45 at $114.98 a barrel.

The choppy trading came after the Energy Information Administration released its report on oil inventories in the week ended August 15th. While the report showed a continued decrease in gasoline inventories, it also showed a much bigger than expected increase in crude oil inventories.

The report showed that crude oil inventories increased by 9.4 million barrels in the latest week following a decrease of about 300,000 barrels in the previous week. Analysts had been expecting a much more modest increase of about 1 million barrels.

With the increase, crude oil inventories rose to 305.9 million barrels and are now in the middle of the average range for this time of year.

However, the EIA, the statistical arm of the Energy Department, also said that gasoline inventories fell by 6.2 million barrels and are below the lower boundary of the average range. The decrease in gas inventories exceeded analyst estimates of a decrease of about 3 million barrels.

The modestly higher close lifted the price of oil further off the three-month closing low that it set on Monday, although it remains more than $30 a barrel below the record high of $147.27 a barrel set in mid-July.

Wednesday, the Bank of Japan lowered its economic assessment saying that the growth will likely remain sluggish for the time being. The central bank expects the world`s second-largest economy to return to moderate growth after international commodity prices stabilize and other economies pick-up the growth momentum. The central bank noted that the economic growth has been sluggish against the backdrop of high energy and materials prices and weaker growth in exports.

In its monthly Report of Recent Economic and Financial Developments released a day after the central bank retained the overnight call rate unchanged at 0.50%, the apex bank said Japan`s export growth is expected to remain only modest for the time being as weakness in overseas economies is reducing demand.

In July, the central bank had said Japan`s economic growth is slowing further, mainly due to the effects of high energy and materials prices and added that the economy is expected to grow at a slower pace for the time being and gradually return onto a moderate growth path thereafter.

On Tuesday, at the conclusion of its two-day monetary policy meeting in Tokyo, the BoJ Board of Governors voted to leave the overnight call rate unchanged for the 21st consecutive meeting. After announcing the decision, the central bank governor Masaaki Shirakawa had said the economic recovery might be delayed as rising prices across the glob is reducing demand for Japanese exports.

In the second quarter of 2008, gross domestic product, or GDP, had decreased 0.6%, marking its first decline since the second quarter of 2007.

Further, the central bank said, as a result of an expected decrease in corporate profits and relatively weak real household income, growth in domestic private demand is likely to be sluggish for the time being. Public investment is also predicted to decelerate. Hence, production is expected to remain relatively weak.

On the price front, the central bank noted that domestic corporate goods prices are likely to continue increasing as rise in international commodity prices is still biting consumers. However, the BoJ said the pace of growth is likely to slow.

The year-on-year rate of increase in consumer prices is expected to be somewhat higher over the coming months but to moderate gradually thereafter, reflecting developments in prices of energy and food, the BoJ said.

The U.S. economy is in the midst of a `fierce correction,` Dallas Federal Reserve President Richard Fisher said Tuesday, adding that he thinks that U.S. growth will decelerate to a `snail`s pace, if not completely grind to a halt` in the second half of 2008.

`We are in the midst of a fierce correction from a prolonged period of indiscriminate behavior in the credit markets, a surfeit of home building, a global avalanche of cheap labor and correspondingly cheap imports, and other unsustainable financial and economic activity,` Fisher said at the Progress & Freedom Foundation summit in Aspen, Colorado.

Those forces, combined with a correction in the housing market that has yet to find its bottom, have made for `tempestuous` credit markets, he said. This will lead to slow, possibly stalled economic growth into 2009, Fisher predicted.

`I expect U.S. economic growth will decelerate to a snail`s pace, if not completely grind to a halt, in the second half of this year,` he said. `Indeed, we may see the slowdown extend into 2009 as the excesses that drove the housing markets unwind before the economy can again gear up to cruising speed.`

Fisher, one of the most hawkish voting members of the FOMC, has dissented at every FOMC meeting so far this year in favor of a less accommodative monetary policy. Inflation is one of Fisher`s chief concerns, and the recent consumer and producer prices data has underscored
his concerns.

The Labor Department`s recent reports on consumer and producer price inflation in the month of July showed increases in both consumer and producer prices that were double what economists had anticipated.

Although he acknowledged the recent tempering of energy prices and the possible calming effect that can have on inflation, Fisher emphasized that the Fed must stand strong against inflation.

`We cannot afford to gamble away our credibility,` he said of the FOMC. `That is why the FOMC has made it clear in its recent statements that we are keenly monitoring inflationary impulses.`

Keeping a close eye on inflation is key, Fisher said. Comparing the U.S. economy to a python in terms of its ability to swallow and digest a tough dinner like high inflation, Fisher suggested that it is too soon to tell whether inflation will cause increased disruption.

`I urge you to observe closely the noble python,` he said. `He might digest and dispatch the recent inflationary surge, or he might gag on it. It is too early to tell.`

`And until we have a clear sense of what will prevail, monetary policy makers must remain poised to act if slowing growth fails to contain inflationary pressures,` Fisher concluded.

A forward-looking index of Australian economic growth declined in June to an annualized rate of 2.0 percent.

The index, published by Westpac Bank and Melbourne University, shrank from a reading of 2.4 percent in May.

The index, which looks at where the economy is headed three to nine months ahead, registered a reading of 256.3 in June, compared to 256.0 in May.

Falling equities prices, tighter liquidity and weak home loan approvals combined with weak U.S. industrial production to reduce the leading index growth estimate.

The coincident index, measuring current economic activity, showed an annualized growth rate of 2.4 percent in June, down from May`s reading of 2.7 percent.

`This is the slowest growth rate of the index since July 2001,` said Westpac Chief Economist Bill Evans. Evans added that signals this week from the Reserve Bank of Australia virtually assure that that interest rate cuts are imminent.

The Reserve Bank of Australia`s Policy Board thinks an interest rate reduction might be necessary to help steer the nation`s economy away from a deeper economic slowdown.

Minutes of the RBA`s August 5 policy meeting, released Tuesday in Sydney, indicate the bank was poised to consider a drop from the current 12-year high cash rate of 7.5 percent.

`Indeed, less restrictive conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase,“ the minutes said. `On these considerations, a case could be made for an early reduction in the cash rate.`

The minutes showed committee members saw that `consumption spending had weakened considerably in 2008, with retail sales being essentially flat in value terms over the first half of the year.`

`On balance, it was now looking more likely that demand would remain on a slower track, and economic growth would be fairly slow, over the period ahead.`

The RBA Board`s next meeting is scheduled for September 2.

Monday, the Federal Statistical Office said in a report that Switzerland`s inflation adjusted retail sales rose 0.7% year-on-year in June, at a slower pace compared to 7.4% rise recorded in May. A year earlier, sales had risen 5.1%. Economists had expected the growth to slow to 3.3% for June.

When adjusted for inflation and the number of shopping days, retail sales rose 4.7% year-on-year in real terms.

In June, sales of food, drinks and tobacco rose 2.5% and that of clothes and textiles was up 0.6%. Sales of other products edged up 0.1%.

Further, the statistical office said retail sales rose real 2.7% year-on-year in the second half of the year after adjusting for inflation. In nominal terms, sales grew 4.4%.