Concerns over Turkish attack on northern Iraq sends crude oil prices to a record high of $88

16 October 2007

Iraq, which has the world''s third-largest crude oil reserves, on Tuesday announced plans to sell 6 million barrels of Kirkuk crude that''s shipped through a pipeline from the country''s Kurd-dominated autonomous northern province. Analysts feel that if the Turkish parliament okays military action, oil prices may touch $90 per barrel.

Crude oil for November delivery rose by $1.84(2.1 per cent) to $87.97 a barrel in electronic trading on the New York Mercantile Exchange (Nymex), the highest price since oil futures were introduced in 1983. The contract traded at $87.43 in London.

Political uncertainties in countries like Iraq, rather than any real supply restriction, is keeping prices high, Iraq''s exports fell by 100,000 barrels a day last month to 1.68 million barrels a day, after an 18 September attack on a pipeline link from the Kirkuk fields. Oil pipelines also run through southern Turkey, where the Kurdistan Workers'' Party (PKK) has mounted many attacks.

Saudi Arabia can cover any shortfall in Iraqi supplies but that would use up all its spare capacity. US inventories of distillate fuels, including heating oil and diesel, fell for a third week. Stockpiles of heating fuel were 21.7 per cent below the seasonal average, the US Energy Department said on 11 October.

Besides the threat to Iraqi supply, there is a risk of attacks on British Petroleum''s (BP''s) Baku-Tblisi-Ceyhan pipeline if there is a conflict. The BP pipeline link has the capacity to transport one million barrels of oil a day from the Caspian Sea region for shipment from Turkey''s southern port of Ceyhan.

Turkey must "show restraint" and avoid any military action against the PKK, White House spokesman Gordon Johndroe said in a statement on Monday. But OPEC members say a falling dollar justifies higher prices, because oil-producing countries sell oil in dollars and often buy goods in euros..