Source AP ©

Oil prices grow dramatically

Oil prices grew up to $89 a barrel after Turkey's parliament authorized an invasion into northern Iraq in quest of Kurdish rebels.

The vote overshadowed a U.S. government report that crude oil and gasoline inventories overall rose more than expected last week. But prices did draw some support from a 200,000 barrel decline in inventories at the closely-watched New York Mercantile Exchange delivery terminal in Cushing, Okla.

Light, sweet crude for November delivery rose $1.09 to $88.69 a barrel on the Nymex after rising to a record $89 earlier.

Oil prices initially fell after the Energy Information Administration reported that crude inventories rose by 1.8 million barrels during the week ended Oct. 12, more than the 1 million barrel increase analysts surveyed by Dow Jones Newswires, on average, had expected.

But prices reversed course and rose after the Turkish parliament vote. Traders worry that any escalation in the conflict between the Kurds and Turkey will cut oil supplies from northern Iraq. Despite the decision, Turkey's government said an incursion into Iraq isn't imminent.

The EIA also reported that gasoline supplies rose by 2.8 million barrels last week, nearly triple analyst expectations for a 1 million barrel increase. November gasoline rose 0.43 cent to $2.178 a gallon on the Nymex.

Distillates, which include heating oil and diesel fuel, rose by 1 million barrels last week, the EIA said. Analysts had expected distillate supplies to fall by 400,000 barrels. November heating oil rose 0.98 cent to $2.3485 a gallon on the Nymex.

In other Nymex trading, natural gas futures rose 11.2 cents to $7.479 per 1,000 cubic feet. In London, December Brent crude fell 43 cents to $83.12 a barrel on the ICE Futures exchange.

The EIA also reported that refinery activity fell last week by 0.5 percentage point to 87.3 percent of capacity. Analysts had expected refinery utilization to grow by 0.4 percentage point.

Crude imports jumped last week by an average of 539,000 barrels a day, while imports of gasoline fell by 230,000 barrels a day on average.

Demand for gasoline rose by about 53,000 barrels last week, but is off 0.5 percent over the past four weeks, the EIA said.

Many analysts said the report strongly counters a market perception in recent days that oil supplies are falling as demand is growing. Reports by the Energy Department, the International Energy Agency and the Organization of Petroleum Exporting Countries over the past week have all supported that belief.

"Inventories are rising, not falling," said Tim Evans, an analyst at Citigroup Inc. in New York. "Demand is falling, not rising."

Many analysts believe speculative investing is the real culprit behind higher prices. Traders see technical signs in the differences between current and future oil contracts that suggest money continues to be plowed into oil futures. And those signals precipitate new buying, which pushes prices even higher.

"I think the market has been trading on momentum," said Antoine Halff, head of energy research at Fimat USA LLC.

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