Oil Rises Above $96 on Expected Supply Drop, Turkish Air Strike

Crude oil rose above $96 a barrel in New York for the first time this month as a government report tomorrow may show a U.S. inventory decline and as Turkish planes bombed suspected Kurdish sites in northern Iraq.

Supplies probably dropped 1.75 million barrels in the week ended Dec. 21, according to the median of nine responses in a Bloomberg News survey of analysts. The Turkish strikes were the latest in a series of cross-border attacks on the outlawed Kurdistan Workers Party, or PKK.

The Turkish attacks are factored in but this isn't a new problem and it has had no impact on the oil flow, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. In oil inventories, we're looking for the sixth straight weekly withdrawal. Crude stocks fell below the five-year average last week and are clearly tightening.

Crude oil for February delivery rose $1.63, or 1.7 percent, to $95.76 a barrel at 11:31 a.m. on the New York Mercantile Exchange. Oil reached $96.54 today, the highest since Nov. 27. Futures touched a record $99.29 on Nov. 21 and are up 57 percent from a year ago.

Trading has been lighter than usual because of the end-of- year holidays. Nymex oil traders exchanged 81,634 contracts on Dec. 24, down 82 percent from a week earlier, according to data compiled by Bloomberg.

The main thing today is that this is a thin, volatile market, Armstrong said. If someone wants to push this market, they clearly can.

The Energy Department is scheduled to release its weekly report on inventories tomorrow at 10:30 a.m. in Washington, a day later than usual because of Christmas.

Bombing Raid

Today's bombing raid was at least the third air operation in Iraq this month. Troops were briefly sent across the border on Dec. 17, according to the army. Turkey says it is using intelligence from the U.S. to target the PKK.

Iraq has the world's third-largest crude-oil reserves. The country's northern region is controlled by a semi-autonomous Kurdish administration. Kirkuk, at the center of the region's biggest oil field, is about 100 miles (161 kilometers) from the Turkish border.

Exports from northern Iraqi fields, which run by pipeline to Turkey's Ceyhan export terminal on the Mediterranean Sea, averaged 400,000 barrels a day last month.

The ongoing Turkish air attacks are an excuse to push prices to the upside, said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. It's debatable whether this will have any effect on Iraqi shipments.

Falling Dollar

Crude-oil prices also rose because the U.S. dollar fell against the euro, which bolstered the appeal of commodities as a hedge against inflation. Weak Christmas retail sales in the U.S. indicate consumers are starting to feel pressured by the slowdown in the housing market. The U.S. uses about 25 percent of the world's oil.

Brent crude for February settlement rose $1.45, or 1.6 percent, to $94.15 a barrel on London's ICE Futures Europe exchange.