Oil Trades Above $86 After Rising on Turkey-Iraq Border Tension

Crude oil traded above $86 a barrel after rising to a record yesterday on concern oil shipments may be disrupted if Turkish forces pursue Kurdish militants in Iraq.

Prices climbed as much as 3 percent yesterday after Turkish Prime Minister Recep Tayyip Erdogan formally asked lawmakers to sanction military action against rebels based in Iraq, holder of the world's third-largest oil reserves. Oil also gained as the dollar fell to a two-week low against the euro and U.S. equities declined the most in two months.

``This is something that Turkey has probably wanted to do for a long time,'' said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``You have the weak dollar, and concerns about the U.S. economy, and that is just spilling into the buying of commodities.''

Crude oil for November delivery was at $86.35 a barrel, up 22 cents, in after-hours electronic trading on the New York Mercantile Exchange at 9:30 a.m. in Sydney.

The contract settled $2.44, or 2.9 percent higher, at $86.13 yesterday. It reached $86.71, the highest since being introduced in 1983.

Today's intraday high 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.

Crude-oil and other commodities also rose because the U.S. dollar declined against the euro, enhancing their appeal as an investment. The Standard & Poor's 500 Index fell 0.8 percent to 1,548.71 yesterday after Citigroup Inc., the largest U.S. bank, said loan defaults will plague the financial industry for the rest of the year.

Currency Impact

``You don't hear a lot of complaining about high prices except in the U.S.,'' Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington said yesterday. ``The rise in prices is a lot less impressive in other currencies.''

In U.S. dollars, West Texas Intermediate, the New York-traded crude-oil benchmark, is up 41 percent so far this year. Oil is up 31 percent in euros, 35 percent in British pounds and 39 percent in yen.

Oil ``is going to soon hit $90 and go north of $100 next year,'' said Peter Schiff, chief executive officer of Darien, Connecticut-based brokerage Euro Pacific Capital, with $700 million in customer accounts. ``We should see $150 to $200 oil in the next two to three years because of the drop in the dollar. Once Asian countries allow their currencies to appreciate, demand will explode there.''

Brent crude oil for November settlement rose $2.20, or 2.7 percent, to close at a record $82.75 a barrel on the London-based ICE Futures Europe exchange yesterday.

OPEC members have said a falling dollar justified higher prices because oil-producing countries sell oil in dollars and often buy goods in euros. OPEC will discuss the impact of the falling dollar when members meet on Dec. 5, Algerian Oil Minister Chakib Khelil said yesterday.

Source - Bloomberg