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Oil Prices Ignite

Melanie Lindner, 10.12.07, 6:00 PM ET

With oil inventories dwindling around the world, and tensions rising with Iraq's Kurds, crude oil hit a record in New York trading on Friday, topping $84 a barrel at one point during the session.

Analyst Phil Flynn of Alaron said, "The reason the market is strong is concern over increasing tensions between Turkey and the Kurds."

The price increase followed news of rising conflict close to major crude oil pipelines in northern Iraq, where Turkey has been combating Kurdish rebels. Prime Minister Recep Tayyip Erdogan of Turkey has said he is willing to defy the international community's warning against crossing the boarder into Iraq, and is ready to take action against the region where the Kurdish Workers' Party, an armed militant group, presumably is located. (See: Is Big Oil Losing The Race For Iraq?)

Iraq currently holds the world's third-largest oil reserves. The majority of that oil is in the northern part of the country, which is predominately Kurdish. The Kurds have no official nation of their own, but they inhabit parts of Iran, Iraq, Syria, Azerbaijan, Armenia and Turkey in a geographic and cultural region known as Kurdistan.

Along with the Kurdish issue has been dwindling supplies. The U.S. Energy Information Administration noted in its weekly report that crude oil supplies slipped 1.7 million barrels in the week ending Oct. 5, despite analysts' prediction of inventories gaining 1 million barrels. Meanwhile, according to the International Energy Agency, oil inventories have fallen below their five-year average in the world's largest industrialized countries.

For the day, oil failed to hold the $84 level and ended at $83.69, still up 61 cents on the session at the New York Mercantile Exchange. Early this year, it was as low as $51.20.

In Friday's New York Stock Exchange trading, iPath S&P GSCI Crude Oil Total Return Index, an exchange-traded fund that tracks oil prices, was up 36 cents, or 0.8%, to $47.36. ExxonMobil gained 0.9%, or 82 cents, to $93.48, while Chevron was up 41 cents, or 0.5%, to $91.41.

Source: Forbes