In New York, the price of oil hit a new record after the US reported a larger-than-expected drop in crude oil inventories.

Light, sweet crude for October delivery rose 83 cents to $79.06 on the New York Mercantile Exchange after setting a new trading high of $79.29 soon after the report’s release. October gasoline added 0.48 cent at $1.9859 a gallon.

Earlier this week an agreement to increase oil production by the world’s crude exporters was attacked by traders as too little to feed soaring demand.

Oil prices failed to fall as had been hoped after the 12-nation Opec cartel said that it was increasing its production quota by 500,000 barrels a day from the start of November.

Abdalla Salem el-Badri, Opec’s secretary-general, said that the move was a response to the crisis in the American mortgage market, which has led to financial instability around the world and heightened the risk of a recession in the United States. “We have seen the financial market and the sub-prime mortgage crisis putting some clouds on the horizon,” he said.

Today, in its weekly report on petroleum inventories, the Energy Department’s Energy Information Administration said crude oil supplies fell by 7.1 million barrels in the week ended September 7, more than twice the 2.7 million-barrel average decline expected by analysts.

The data boosted the oil heavyweights in the FTSE 100. BP closed 4p higher at 567.5p. Royal Dutch Shell was 21p firmer at 2,104p.

In the wider equities markets, UK blue chips recovered from morning losses to close higher, with Wall Street edging higher, but still seeking direction ahead of the Federal Reserve’s meeting on Tuesday.

At the close, the FTSE 100 index was up 25.5 points at 6,306.2.

The FTSE 250 closed 7.4 higher at 11,219.7.

As London was closing, the Dow Jones Industrial Average was up about 30 points at 13,338.4.

The London market also benefited after comments from the Bank of England fuelled hopes that interest rates had peaked. BAE shot to the top of the risers board, ahead 14.75p at 478.25p, or 3 per cent, after it confirmed a report in The Times that it won a $3.5 billion (£1.75 billion) contract from the US Army.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Darling under pressure on record public debt
• Mortgage lending falls 32% as drought deepens
• Oil prices firm after 10% drop to below $130