Oil prices soar

Oil prices soared to fresh highs today as tensions between Iraq and Turkey added to fears over global supply.

The cost of a barrel of light, sweet crude rose as high as 87.97 dollars on the New York Mercantile Exchange earlier today.

The potential Middle East flashpoint has driven up prices already bolstered by a weak dollar and buying by investment funds.

Motorists are likely to feel the knock-on effect on UK petrol costs in coming months as the rising prices also threaten Bank of England efforts to keep a lid on inflation.

Drivers are already paying around £1 a litre after a 2p rise in fuel duty took effect at the start of this month.

Light crude prices dropped back later, but were still trading above the record close of 86.13 US dollars seen on Monday.

In London, Brent crude advanced as high as 83.96 US dollars a barrel on the ICE Futures before also easing back.

Seymour Pierce analyst Jon Dunningham said oil prices were “likely to be volatile in the short term” but added: “Much of this recent increase is due to speculative trading on the back of political issues in Northern Iraq and Turkey and another week of lowish US oil inventories.

“It is important to pull back from what has been happening over the past few days and remember where oil was in January of 2007 – 55 US dollars.”

Today’s record was achieved after Turkey’s leaders sought parliamentary approval for military action against Kurdish rebels who operate from bases in northern Iraq. The region has the world’s third largest oil reserves.

Additionally, a US energy report last week revealed an unexpected fall in crude stockpiles ahead of the key winter months, while the International Energy Agency added to uncertainties after it said oil stocks held by the world’s biggest industrialised countries have fallen to a five-year low.

The high oil prices have in turn attracted buyers looking to cash in on further price rises after the buying of oil futures contracts jumped last week.

David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney, said: “Particularly because the oil price has been so strong, that in itself may have attracted some speculators to oil.”

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980.