Source AP ©

Oil prices rise above record close in Asian trading

Oil prices rose above an overnight record close in Asian trading Tuesday to set a new high on fears Turkey will pursue Kurdish rebels into Iraq and disrupt oil supplies in the region.

A weakening U.S. dollar, low U.S. crude inventories and increased buying by investment funds also supported prices, analysts said.

The Turkish government's decision Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked the worries about disrupted oil supplies.

"Whenever there is any escalation in political tensions in the Middle East, oil markets become concerned," said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney. "There is production and there are pipelines that people worry may be affected if there are any issues in Iraq."

There have been several skirmishes along the Turkey-Iraq border already. Although oil coming out of the region has been erratic, a total disruption would be bullish for the market, analysts said.

Light, sweet crude for November delivery rose 51 cent to US$86.64 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. It rose as much as 66 cents in the electronic session to a fresh trading high of US$86.79 a barrel.

The contract jumped US$2.44 to settle at a record close of US$86.13 a barrel Monday.

"US$86 is a historically high level... Many people are looking at this level for the first time so it's very difficult to say what will happen next," said Tetsu Emori, commodity markets fund manager at ASTMAX Futures Co. in Tokyo. "All the factors in the market are bullish, there are no bearish factors except maybe that the market looks like it's been overbought, technically."

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a US$38 barrel of oil in 1980 would be worth US$96 to US$101 or more today.

November Brent crude advanced 40 cents to US$83.15 a barrel on the ICE futures exchange in London.

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday show that speculative buying of oil contracts increased last week.

"Particularly because the oil price has been so strong, that in itself may have attracted some speculators to oil," Moore said.

Many investment funds automatically buy or sell oil futures when prices hit certain levels. In recent days, as oil has pushed into new record territory, several of these resistance prices levels have been broached. That triggers new buying, driving prices even higher.

Analysts also cited the weak dollar - which makes crude cheaper for traders using other currencies - as a factor in higher commodity prices generally. The dollar lost ground Monday to most major currencies.

Heating oil futures added 0.90 cent to US$2.3162 a gallon (3.8 liters) while gasoline prices rose 1.29 cents to US$2.1704 a gallon. Natural gas futures lost 0.1 cents to US$7.444 per 1,000 cubic feet.