Turkey tensions push oil to new high

OIL prices have soared to a new high and analysts are predicting they are expected to remain at their current level.

As spiralling tensions on the border between Turkey and Iraq added to concerns over winter supplies in the United States, the cost of light, sweet crude for November delivery jumped yesterday to $85.19 a barrel - a new high - in New York, building on highs seen last week on the back of weak inventory figures.

London Brent crude was $1.08 higher at $81.63, close to its record high of $81.93.

The New York record comes as Turkey's leaders seek parliamentary approval for military action against Kurdish rebels who operate from bases in northern Iraq. The region has the world's third largest oil reserves. The price was also propelled by robust demand from booming commodity markets, especially in emerging markets such as India and China.

Oil has now remained above $80 for most of the past month. "A run at $90 is now seen as reasonable," Citigroup analysts said in a note.

Gold struck a 28-year high yesterday, while platinum hit a record high. Copper, lead and nickel were also firm.

A US energy report last week revealed an unexpected fall in crude stockpiles ahead of the winter months, while the International Energy Agency added to uncertainties by saying oil stocks held by the world's biggest industrialised countries had fallen to a five-year low.

Keith Morris, oil analyst at Evolution Securities, said: "Data showed an unexpected drop in oil inventories when most people expected them to go up. This is leading to concerns that demand for oil is not slowing down ahead of winter."

However, experts remained confident the world economy could take the rise.

"The demand picture looks fairly good. I don't think you have had a big effect of the credit crisis on oil or for that matter any commodity," said Merrill Lynch's head of global commodity research, Francisco Blanch. "They have behaved in an uncorrelated fashion. The growth momentum is pretty strong."

US energy secretary Sam Bodman said he thought the country's economy had been "remarkably resilient" to record oil prices. And the Organisation of the Petroleum Exporting Countries (OPEC) said the world's top consumer looked likely to avoid a sharp economic downturn.

In its monthly report, OPEC raised its forecast for demand for its crude this winter. The group, which pumps more than a third of the world's oil, is already set to boost supplies by 500,000 barrels a day from 1 November.

Analysts said the mounting tensions between Turkey and northern Iraq had helped inject nervousness into an already stretched market. The Middle East pumps a third of the world's oil and supply disruptions there can hugely affect the oil price.

Oil analyst Robert Montefusco at the Sucden brokerage in London said:

"There's no lost production at the moment, so it's only perceived that we could lose some production if any of the pipelines are affected in that region."

Blanch added: "We haven't had geopolitics for nine to 12 months, and suddenly they are coming back at the worst time. Geopolitics strike when you least want them to."