Oil marched to a new peak of $89 a barrel on Wednesday as investors fretted over possible military action in northern Iraq and a potential supply crunch this winter.
Turkey’s Parliament on Wednesday granted its troops permission to launch an attack inside Iraqi territory, despite international pressure not to.
The tensions are seen as dimming hopes for a recovery in Iraqi oil exports via Turkey, which have been sporadic since 2003, but traders say the greater fear is the risk of unsettling the Middle East region, which pumps a third of the world’s oil.
United States crude entered a seventh day of gains, soaring $1,39 to trade at $89 before pulling back to $88,22 by 15h51 GMT — a 61-cent rise. London Brent crude rose 25 cents to $83,80.
The surge, also driven by an inflow of investor money, has taken prices near their $90,46 inflation-adjusted peak of 1980. US officials fear damage to an economy already coping with fall-out from the subprime loan crisis.
”The steep gains are the result of a prolonged period of tightening oil-market balances and, with fundamentals set to stay very supportive moving into the winter season, the possibility of further upside remains open,” said a Barclays Capital report.
The impact of the geopolitical risk was magnified by concerns that Opec’s (Organisation of the Petroleum Exporting Countries) 500 000 barrels per day (bpd) output rise may be too little too late to maintain healthy supplies through the winter, with refiners revving up to meet peak demand.
Saudi Arabia, Opec’s top producer, is set to boost output close to nine million bpd in November under the group’s agreement.
The US Energy Information Administration said on Tuesday the market needed additional Opec oil. — Reuters