NEW YORK (AFP) — Oil prices hit new record highs Tuesday amid heightened concerns about a potential Turkish incursion into oil-rich northern Iraq to attack Kurdish rebels.
New York's main oil futures contract, light sweet crude for delivery in November, closed above 87 dollars per barrel for the first time after striking a record 88.20 dollars in intraday trading.
The benchmark New York contract gained 1.48 dollars to settle at a record 87.61 dollars. On Monday it jumped more than two dollars a barrel.
In London, Brent North Sea crude for November advanced 1.41 dollars to settle at 84.16 dollars, after earlier hitting an all-time high of 84.49 dollars during the session.
Oil prices surged as investors fixated on Turkey, where the parliament was expected to approve a government motion to allow cross-border raids into Iraq for one year to root out the Kurdistan Workers Party (PKK).
"A good portion of the gains can be tied to the escalation in tensions between Turkey and Kurdish rebels, which has added a sizable geopolitical risk premium into prices over the last several trading sessions," said Michael Fitzpatrick, an analyst at MF Global.
The PKK, considered a terrorist group by Turkey and much of the international community, has been fighting for Kurdish self-rule in southeast Turkey since 1984.
The potential of a military conflict had the oil market on edge.
"This raises concerns any such action will jeopardize and possibly disrupt Northern Iraqi oil flows or flows through the Baku-Ceyhan pipeline across Turkey. If geopolitical tensions escalate further, prices have the potential to test 90 dollars this week," Fitzpatrick said.
Many of Iraq's largest oil fields are located in the north of the troubled country.
"The tensions in Turkey are the main driver here," said Nas Nijjar, a trader at CMC Markets.
"Now we have potential (supply) problems on top of that going into the winter."
Prices were additionally supported by concerns over potentially stretched global energy supplies, particularly during the forthcoming northern hemisphere winter, when demand for heating fuel hits a peak.
"Crude futures surged higher (on Tuesday), reaching fresh record highs in London and New York on continuing speculative and fund buying, amid persistent geopolitical and supply worries," said Sucden analyst Michael Davies.
OPEC chief Abdalla Salem El-Badri said the cartel was "concerned" at the price spike but argued that current levels did not reflect the true state of supply and demand in the market.
The Organization of the Petroleum Exporting Countries "is carefully watching developments in the oil market and has observed with concern the recent escalation in oil prices," OPEC chief El-Badri said in a statement.
"While (OPEC) does not favor oil prices at this level, it strongly believes that fundamentals are not supporting current higher prices and that the market is very well supplied," he added.
Dealers had been spooked Monday when OPEC cut its fourth-quarter non-OPEC production outlook by 110,000 barrels per day.
According to OPEC data, Iraq produced about 2.0 million barrels of crude per day in August. Before April 2003, it pumped an estimated 2.8 million bpd.
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