Oil sprints towards $88, sets new record high

LONDON - Oil thundered towards $88 a barrel on Tuesday, hitting a new record and extending a rally that has added eight dollars in a week on tight supplies, strong demand and tension in northern Iraq.

By (Reuters)

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Published: Tue 16 Oct 2007, 5:02 PM

Last updated: Sat 4 Apr 2015, 11:27 PM

Oil is closing in on the inflation-adjusted high of $90.46 seen in 1980, the year after the Iranian revolution and at the start of the Iran-Iraq war. Prices this year have averaged $67.

At 1029 GMT, US crude was up $1.31 at $87.44, off a high of $87.97. London Brent was up $1.06 at $83.81.

Oil has set a series of records over the past three days.

Investors have cited rising tensions between Turkey and Kurdish separatists in northern Iraq, sturdy world energy demand growth, tight inventories in consumer nations heading into winter and unprecedented weakness in the US dollar.

‘There’s a lot of risk there and that is being reflected in the price,’ said fund manager David Dugdale of MFC Global Investment Management.

Tetsu Emori, a fund manager at Japan’s Astmax Futures Co. Ltd, took a similar view: ‘It is difficult to find any bearish factors now. There’s the Iraq-Turkey issue, a weak dollar, and inventory levels for US heating oil are much lower than a year ago.’

US distillate inventories, including heating fuel, are expected to ease by 300,000 barrels for the week ended Oct. 12, a Reuters poll ahead of the release of the Energy Information Administration’s weekly data on Wednesday showed. [EIA/S]

The latest flurry of buying extends the market’s rise from below $70 in mid-August.

A possible Turkish military attack against Kurdish separatists in Iraq has spurred buying as dealers fear a possible disruption to regional oil supplies.

The Turkish cabinet asked parliament on Monday for permission to launch the attack. Iraqi oil exports via Turkey have been sporadic since 2003, although Turkey is also now a major conduit for Caspian oil exports to the Mediterranean.

‘It’s mainly driven by the situation on the Turkey-Iraq border and the uncertainty that surrounds it,’ said Tobin Gorey, a commodities strategist at Australia’s Commonwealth Bank. ‘The market is paying for that uncertainty now.’

Oil’s 10 percent surge since October 9 has also been aided by additional fund buying across commodities, partly as a hedge against a weaker dollar. Gold hit a 28-year high and platinum breached record levels. [COM/WRAP]

Moves by the US Federal Reserve to cut interest rates and add billions of dollars of temporary reserves to the banking system have helped ease a global credit crunch and added liquidity to markets.

Investors have been pumping money into energy and commodities, viewed by some as a one-way bet.

Indonesia’s OPEC governor said there was no fundamental justification for oil’s surge towards $88.

‘The market fundamentals are in balance. There is too much money coming into the market,’ Maizar Rahman told Reuters.

Three OPEC delegates from the Middle East said they had heard no discussion within the organization about raising output beyond the 500,000 barrels per day agreed in September.

Oil prices have more than quadrupled since 2002 and climbed 43 percent since the start of 2007.

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