Oil traded higher on Tuesday by nearly $3 at one point as investors quenched a growing risk appetite for tangible commodities against the background of a weakening dollar and the looming prospect of inflation.

NYMEX crude for October delivery stood at $70.03 a barrel by 1346 GMT (9:46 a.m. EDT), up $2.01 from Friday's close, after briefly rising as high as $71.01. NYMEX was closed for the U.S. Labor Day holiday on Monday.

London Brent crude rose $2.10 to $68.63 a barrel.

The dollar slumped to its lowest in almost a year against a basket of currencies as gold rallied above $1,000 on Tuesday, its highest since March 2008.

Today's move by gold above $1,000 probably triggered crude markets to rally, spurring inflation fears and causing traders to buy oil as a hedge against inflation, said analyst Eugen Weinberg at Commerzbank.

Global commodities, priced in dollars, tend to rise when the value of the U.S. currency falls.

Nothing has really changed fundamentally, said trader Rob Montefusco at Sucden Financial.

It's all technical levels blowing through as the dollar gets spanked against the euro and gold.

OPEC MEETS

The Organization of the Petroleum Exporting Countries meets in Vienna on Wednesday, with most analysts expecting OPEC, the source of more than a third of the world's oil supply, to maintain its official price target of around $70.

Nobody expects anything from them, said Weinberg at Commerzbank.

There are some other issues; compliance, non-OPEC production, and huge ventures worldwide that might still have an impact, but otherwise nobody expects them to cut any more production.

Crude prices, although up 50 percent so far this year, are still less than half their peak struck in July 2008, and consumers and producers are happy with that, Saudi Arabia's Oil Minister Ali al-Naimi said on Tuesday.

Naimi described the oil market as steady and in good shape, although when asked if oil inventories were too high, said Yes, they are a little bit.

Oil prices, which fell 6.5 percent last week, have been trading in a range between $65 and $75 a barrel since the start of August, with prices swinging on economic data as investors seek clues about the speed of a recovery from the recession.

Investors will be on watch for inventory data, delayed by a day this week due to Monday's holiday.

The American Petroleum Institute's petroleum stocks report will be delayed one day to Wednesday, September 9, at 4:30 p.m. EDT and Energy Information Administration snapshot of crude oil, distillates and gasoline stocks will be pushed out to Thursday, September 10, at 11 a.m. EDT.

Traders will also keep an eye out as Tropical Storm Fred formed in the eastern Atlantic Ocean on Monday with top winds of 40 mph, but did not immediately threaten any land, the U.S. National Hurricane Center said.

(Additional reporting by Nick Trevethan in Singapore; editing by Keiron Henderson)

Commerzbank OPEC