2007-10-16

Crude oil rose above $88 a barrel for the first time in New York on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.

Turkish Prime Minister Recep Tayyip Erdogan said the country's parliament tomorrow may approve a military incursion into Iraq, which holds the world's third-largest reserves. Shipments of oil from northern Iraq have been cut for most of the time since the U.S. invasion in 2003.

``This is the knee-jerk reaction to the threat of a Turkish invasion of northern Iraq,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Whenever you see the threat of an outbreak of violence within 300 miles of a Middle East oil field, prices are going to surge.''

Crude oil for November delivery rose $1.48, or 1.7 percent, to settle at $87.61 a barrel at 2:43 p.m. on the New York Mercantile Exchange. It was a record close. Futures reached $88.20, the highest intraday price since the contract was introduced in 1983. This was the sixth straight daily gain. Prices are up 46 percent from a year ago.

``Once the invasion occurs, prices will probably fall because the oil fields are well south of the mountains on the Turkish border,'' said Lynch.

Yesterday, prices passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.

Brent crude oil for November settlement rose $1.41, or 1.7 percent, to close at a record $84.16 a barrel on the London-based ICE Futures Europe exchange. Brent reached $84.49, a record intraday price.

Iraqi Shipments

Iraq's exports fell 100,000 barrels a day last month to 1.68 million barrels a day, after a Sept. 18 assault on a link from Kirkuk oil fields. The country's oil-rich northern region is controlled by a semi-autonomous Kurdish administration. Kirkuk is about 100 miles (161 kilometers) from the Turkish border.

Turkey says it must act because U.S. and Iraqi forces have failed to control the 3,500 members of the PKK, or Kurdistan Workers' Party, who are in Iraq while they pursue a two-decade conflict with Turkish forces to gain autonomy. Oil pipelines run through southern Turkey where many attacks by the PKK have occurred.

Turkey must ``show restraint'' and avoid any military action against the PKK, said White House spokesman Gordon Johndroe in a statement yesterday.

OPEC Statement

The Organization of Petroleum Exporting Countries, which produces about 40 percent of the world's oil, said current market fundamentals do no support high oil prices.

``OPEC will continue to monitor the global oil market and will respond to any supply disruption, so as to ensure the market remains well supplied during the winter months,'' OPEC Secretary- General Aldallah Salem El-Badri said in an e-mailed statement today from OPEC's headquarters in Vienna.

Speculators, refinery bottlenecks, seasonal maintenance work and geopolitical issues are pushing prices higher, El-Badri said in today's statement.

Political unrest in countries like Iraq, rather than any supply restriction, is keeping prices high, Libya's top oil official, Shokri Ghanem, said yesterday.

OPEC agreed last month to produce an extra 500,000 barrels a day starting Nov. 1. World oil consumption peaks in the fourth quarter when refiners make heating fuel.

`Tide Will Turn'

``It's pretty clear that the contract has another upward leg to it,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``There's a lot of commodity-fund buying unrelated to the fundamentals of the market. The high prices are more and more difficult to justify, so at some point the tide will turn.''

An Energy Department report tomorrow will show that U.S. crude-oil stockpiles rose 1.05 million barrels last week, according to the median of responses by 16 analysts surveyed by Bloomberg News. Crude-oil inventories in the week ended Oct. 5 were 8.3 percent above the five-year average for the period, the department said last week.

Dollar Weakness

Crude-oil has also risen this year because the U.S. dollar declined against the euro, enhancing the appeal of commodities as an investment. A lower dollar makes oil relatively cheaper in the countries using other currencies. The dollar, which is up 0.3 percent today, has lost 12 percent of its value against the euro over the last 12 months.

In U.S. dollars, West Texas Intermediate, the New York- traded crude-oil benchmark, is up 44 percent so far this year. Oil is up 34 percent in euros, 38 percent in British pounds and 41 percent in yen.

OPEC members have said a falling dollar justifies higher prices because oil-producing countries sell oil in dollars and often buy goods in euros. The group will discuss the falling dollar when members meet on Dec. 5, Algerian Oil Minister Chakib Khelil said yesterday.

Heating oil for November delivery increased 3.15 cents, or 1.4 percent, to $2.3387 a gallon in New York, a record close. Futures touched $2.3401 a barrel, the highest intraday price since trading began in 1978.

  Email Article

  Discuss in the Forum

Back