Oil prices hit a fresh record of $89 (€62.69) a barrel yesterday in volatile trading as dealers wrestled with US inventories data and the increasing threat of military action by Turkey in northern Iraq.

Turkey's parliament has approved a government request to allow troops to cross the border into northern Iraq to confront Kurdish militia, raising concerns over the likelihood of further destabilising violence in the Middle East.

Nymex November West Texas Intermediate rose 71 cents to $88.32 a barrel after touching a record high of $89, while ICE December Brent gained 44 cents to reach $83.99 a barrel.

Oil prices retreated initially after the latest US inventories data showed a 1.2 million barrel increase in crude stocks last week, higher than the consensus market forecast for a rise of 900,000 barrels.

However, prices rapidly shifted direction as the news from Turkey broke shortly after the inventories figures.

A fall in crude stocks at Cushing, Oklahoma, the main delivery point for West Texas Intermediate (WTI), was cited by traders as supporting a push higher for oil prices.

The expiry of November WTI options, also yesterday, was a key factor in market activity. Dealers said about 11,000 call options open at $90 are resulting in intense efforts by speculators to drive the price to that level and also forcing short covering by those traders who had been expecting prices to weaken.

Product prices consolidated as strength in the crude market outweighed larger-than-expected increases in petrol and heating oil stocks.

The Organisation of the Petroleum Exporting Countries (Opec) has blamed speculators for rising oil prices and reiterated its view that global markets remained well supplied. However, the International Monetary Fund said yesterday that oil prices were likely to remain high in the absence of a further change in Opec's quota policies or a major economic slowdown.