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Oil Hits Record High Over Turkey-Kurd Tensions

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By JOHN WILEN, The Associated Press

Published: October 17, 2007

NEW YORK - Oil futures rallied to a new record of more than $88 a barrel Tuesday on concerns about disruptions to Middle Eastern crude supplies and a growing view that domestic supplies are not sufficient to meet fourth-quarter demand.

Traders are concerned that a Turkish incursion into Iraq in search of Kurdish rebels could disrupt crude supplies from northern Iraq.

'Whenever there is any escalation in political tensions in the Middle East, oil markets become concerned,' said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney. 'There is production and there are pipelines that people worry may be affected if there are any issues in Iraq.'

On Tuesday, Turkey's prime minister said Monday's decision to ask Parliament for permission to pursue the rebels was not a sign Turkish forces will act immediately.
Middle East tensions add to supply concerns that have been stoked in recent days by reports from the U.S. Department of Energy, International Energy Agency and Organization of the Petroleum Exporting Countries suggesting oil supplies are flat or falling as demand is growing.

Light, sweet crude for November delivery rose $1.48 to settle at a record $87.61 a barrel Tuesday. Earlier, prices rose as high as $88.20, a trading record.

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Many analysts argue the supply and demand fundamentals don't support oil in the high $80 range and think speculative investing is the real culprit behind high oil prices. And as long as investors are willing to keep buying, prices will keep rising.

'It still doesn't act like a market that has placed a high,' said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

Also Tuesday, November gasoline rose 1.62 cents to settle at $2.1737 a gallon on the Nymex, while heating oil futures rose 3.15 cents to settle at $2.3387 a gallon.

Natural gas for November fell 7.8 cents to settle at $7.367 per 1,000 cubic feet after a storm in the Gulf of Mexico appeared to weaken, becoming less of a threat to critical gas and oil infrastructure.

In London, November Brent crude rose $1.41 to settle at $84.16 a barrel on the ICE Futures exchange.

U.S. retail gas prices have not kept pace with oil's recent rally into record territory, as many analysts had expected. At the pump nationwide, the average price of a gallon of gas rose 0.2 cent overnight to $2.759 a gallon, according to AAA and the Oil Price Information Service. Gas prices are 53 cents higher than a year ago but have fallen during the past month. That could change, however, now that oil is again on the rise.

'Consumers will now see higher prices at the pump in the coming months and weeks,' said John Kilduff, vice president of risk management at MF Global UK Ltd.

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