Crude oil prices hit a record high of more than $88 a barrel yesterday amid concerns that Turkey's military forces were preparing to attack Kurdish militias in northern Iraq.
However, the Organisation of Petroleum Exporting Countries (Opec) said that fundamentals did not support record price levels and that the market remained well supplied.
Nymex November West Texas Intermediate hit $88.20 a barrel before easing back to trade $1.77 higher at $87.90. ICE November Brent rose $1.71 to $84.46 a barrel after hitting an all-time high of $84.49 earlier in the session.
Analysts at Barclays Capital said that global energy markets were underpinned by strong fundamentals. "We regard rapid tightening of global oil balances as the primary factor behind the move up in prices," said Kevin Norrish.
Francisco Blanch, chief commodities strategist at Merrill Lynch, has said that an early winter cold snap or a serious geopolitical problem could drive oil to $100 a barrel.
Edward Meir, of MF Global Financial, said that the market had lost sight of the fact that Iraqi oil exports from the region were negligible and not much output would be lost in the event of any fighting, as previous Turkish incursions did not damage the infrastructure and were generally of short duration.
"Oil has usurped the position of gold as the market's barometer of geopolitical tensions," said Mr Meir.
Turkish prime minister Recep Tayyip Erdogan said he expected that the country's parliament would tomorrow approve a possible military incursion into Iraq. Shipments of oil from northern Iraq to Turkey's Mediterranean coast have been cut off most of the time since the US invaded Iraq in 2003 as a result of attacks on pipelines.
Iraq's oil exports fell by 100,000 barrels a day last month to 1.68 million barrels a day after a September 18th assault on a link from the Kirkuk oilfields. The country's oil-rich northern region is controlled by a semi-autonomous Kurdish administration. Kirkuk is about 100 miles from the Turkish border.
Opec, which produces about 40 per cent of the world's oil, said that current market fundamentals did not support high crude oil prices and any supply disruption would trigger a response by the group.
"Opec will continue to monitor the global oil market and will respond to any supply disruption to ensure that the market remains well supplied during the winter months," Opec secretary-general Abdallah Salem El-Badri said in a statement yesterday from Opec's headquarters in Vienna.
Market speculators, refinery bottlenecks, seasonal maintenance work and geopolitical issues are pushing prices higher, El-Badri said in the statement. Opec agreed last month to produce an extra 500,000 barrels a day from November 1st next.
World oil consumption peaks in the fourth quarter, when refiners make heating fuel.
"It's pretty clear that the contract has another upward leg to it," said Eric Wittenauer, an energy analyst at AG Edwards & Sons Inc in St Louis.
