The price of a barrel of West Texas Intermediate crude oil is nearing the $80 mark. On Friday, WTI closed at $79.81 per barrel and has traded as high as $80.51 today. The price of crude is at its highest point since mid-January.

The price rise reflects the strengthening of the dollar following last week’s surprise announcement from the Federal Reserve that it was raising the discount rate to 0.75%. As the dollar strengthens, crude prices rise. When the dollar pulls back, as it has a bit this morning, crude prices fall.

Other economic news also fed the rise toward $80 per barrel. Germany is considering a plan to prop up Greece to the tune of 20-25 billion euros. There is a refinery strike in France, affecting all Total SA’s (TOT) refineries. Most important, perhaps, is the report from China that it has processed 29% more crude in January 2010 than it did a year ago.

Demand from China, and to some extent India, coupled with the relative strength or weakness of the dollar are the main drivers of crude prices. The unknown factor is what OPEC might do as prices rise. The agreed-upon OPEC production quota of 24.85 million barrels per day has routinely been exceeded — in January OPEC members pumped more than 29 million barrels per day.

The U.S. Energy Information Administration expects OPEC production to average 29.56 million barrels per day in 2010, and then to rise in 2011 as demand for oil recovers, mirroring the recovery in the overall global economy.

The cutbacks in OPEC production have left the cartel with slightly more than 5 million per barrels day in excess capacity. Non-OPEC production, particularly from Russia, was up about 500,000 barrels per day in 2009, and is expected to rise to about 1 million barrels per day in 2010.

Just looking at these few fundamentals, it doesn’t seem that there’s any reason to expect prices to do more than test the $80 per barrel barrier.

Another reason to question the strength of the current price run-up is that the Saudis have pronounced a price range of $70-$80 per barrel as “fair.” Because the

Saudis own essentially all of OPEC’s spare capacity, they could increase production if they believe the price is rising too far.

A contrary view from Goldman Sachs (GS) says the supply-demand balance will tighten and draw OPEC’s spare capacity back to the market at the same time that a strengthening economy in the U.S. begins to drive up demand and prices. The bank sees prices rising to the $85-$95 per barrel range in 2010.

That could happen, but the U.S. and Europe are not driving global oil demand growth. China is in the driver’s seat, and that country’s recent pull back on lending and its need to fight increasing inflationary pressures could easily cause demand from China to stall.

Soft demand from the U.S. and China, the spectre of OPEC’s spare capacity, and an overall view that global economic recovery will continue at a relative snail’s pace add up to oil prices staying below $85 per barrel for the time being.

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