Crude Oil Rises to a Record on Concern Turkey May Attack Iraq
By Mark Shenk
Oct. 16 (Bloomberg) -- Crude oil rose to a record $87.97 a barrel in New York on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.
Turkish Prime Minister Recep Tayyip Erdogan said he expects the country's parliament will tomorrow approve a possible military incursion into Iraq, which holds the world's third- largest reserves. Shipments of oil from northern Iraq to Turkey's Mediterranean Sea have been cut for most of the time since the U.S. invasion in 2003 because of attacks on pipelines.
``This is the knee-jerk reaction to the threat of a Turkish invasion of northern Iraq,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Whenever you see the threat of an outbreak of violence within 300 miles of a Middle East oil field, prices are going to surge.''
Crude oil for November delivery rose 34 cents, or 0.4 percent, to $86.47 a barrel at 10:04 a.m. on the New York Mercantile Exchange. Futures reached $87.97, the highest since the contract was introduced in 1983. This is the sixth straight daily increase. Prices are 44 percent higher than a year ago.
``Once the invasion occurs, prices will probably fall because the oil fields are well south of the mountains on the Turkish border,'' said Lynch.
Yesterday, prices passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.
Brent crude oil for November settlement rose 40 cents, or 0.5 percent, to $83.15 a barrel on the London-based ICE Futures Europe exchange. Brent reached $84.31, the highest since the contract was introduced in 1988.
Iraqi Shipments
Iraq's exports fell 100,000 barrels a day last month to 1.68 million barrels a day, after a Sept. 18 assault on a link from Kirkuk oil fields. The country's oil-rich northern region is controlled by a semi-autonomous Kurdish administration. Kirkuk is about 100 miles (161 kilometers) from the Turkish border.
Turkey says it must act because U.S. and Iraqi forces have failed to control the 3,500 members of the PKK, or Kurdistan Workers' Party, who are in Iraq while they pursue a two-decade conflict with Turkish forces to gain autonomy. Oil pipelines run through southern Turkey where many attacks by the PKK have occurred.
Turkey must ``show restraint'' and avoid any military action against the PKK, said White House spokesman Gordon Johndroe in a statement yesterday.
Political unrest in countries like Iraq, rather than any supply restriction, is keeping prices high, Libya's top oil official, Shokri Ghanem, said yesterday.
OPEC Statement
The Organization of Petroleum Exporting Countries, which produces about 40 percent of the world's oil, said current market fundamentals do no support high crude-oil prices and any supply disruption will get a response by the group.
``OPEC will continue to monitor the global oil market and will respond to any supply disruption, so as to ensure the market remains well supplied during the winter months,'' OPEC Secretary- General Aldallah Salem El-Badri said in an e-mailed statement today from OPEC's headquarters in Vienna.
OPEC agreed last month to produce an extra 500,000 barrels a day starting Nov. 1 to meet rising demand. World oil consumption peaks in the fourth quarter when refiners make heating fuel for the Northern Hemisphere winter.
`Tide Will Turn'
``It's pretty clear that the contract has another upward leg to it,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``There's a lot of commodity-fund buying unrelated to the fundamentals of the market. The high prices are more and more difficult to justify, so at some point the tide will turn.''
An Energy Department report tomorrow will show that U.S. crude-oil stockpiles rose 1.5 million barrels last week, according to the median of responses by 14 analysts surveyed by Bloomberg News. Crude-oil inventories in the week ended Oct. 5 were 8.3 percent above the five-year average for the period, the department said last week.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .
Last Updated: October 16, 2007 10:25 EDT |
