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Forbes: Oil Hits Record High

Vidya Ram, 10.15.07, 1:55 PM ET

LONDON – Concerns about crude inventory levels in the U.S. and escalating tensions between Turkey and Iraq drove oil prices to an all-time high Monday.

The price of sweet crude oil for November delivery in New York rose to $85.39 a barrel in afternoon trading. It is the first time a barrel has passed $85. On Friday, oil closed at a record $83.69 on the New York Mercantile Exchange.

Last week oil prices, which have remained above $80 since the start of September, set new records, amid concerns that falling crude inventories in the United States could mean that there were insufficient supplies for the winter period. Threats from Turkey to invade northern Iraq to deal with rebels in the north of the country have also kept prices strong. As the area close to major crude oil pipelines, any conflict in the region could disrupt oil supplies form Iraq, which holds the world’s third-largest oil reserves.

The price gains gave a boost to oil companies, including BP (nyse: BP – news – people ) which traded up 0.8%, or 56 cents, to $75.99, while Royal Dutch Shell (nyse: RDSA – news – people )’s shares rose by 61 cents, or 0.7%, to $83.76.

Airlines, which consume large amounts of fuel, were dragged lower by the higher prices Monday. Shares of Delta Air Lines (nyse: DAL – news – people ) fell 73 cents, or 3.7%, to $19.23; shares of AMR (nyse: AMR – news – people ) fell 88 cents, or 3.5%, to $24.26; and shares of Continental Airlines (nyse: CAL – news – people ) fell $1.67, or 4.5%, to $35.47.

“Prices have been hovering menacingly around the $80 a barrel level with market concern shifting between many different factors, including tight crude inventory levels in the United States, continued fallout from the subprime mortgage crisis, questions over future demand and the strength of the world economy, and, most-recently, the threat of military action by Turkey against Kurdish guerrillas operating out of Iraq,” said Lawrence Poole, energy analyst at Global Insight.

Despite strong inventories in September, last Thursday the U.S. Energy Department released figures that showed a significant drop in domestic gas supplies while the International Energy Agency said that the oil inventories of the world’s largest industrialized countries had fallen below their five-year average. (See: ” Oil Prices Ignite”)

Later this week the government of Turkish Prime Minister Recep Tayyip Erdogan will attempt to gain parliamentary approval for a military expedition to deal with Kurdish rebel bases in Northern Iraq, in defiance of international calls for restraint. Turkey has argued that the estimated 3,500 rebels of the separatist Kurdistan Workers’ Party have been using their basis in northern Iraq as a safe haven, from which to launch attacks on Turkey.

The new tensions in the Middle East have meant that despite speculation that the figures from the U.S. Energy Department could largely be an anomaly, oil could continue to gain. Poole said that prices were likely to remain high ahead of the Turkish parliamentary vote, and could stay as high as $85 a barrel. However he said that the gains were likely to be short lived and that prices could drop to between $70 to $75 a barrel in the coming months.

http://www.forbes.com/markets/2007/10/15/oil-prices-update-markets-equity-cx_vr_af_1015markets28.html?boxes=relstories

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