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Oil Surges to New Record Of $89.47 a Barrel

Oil prices extended a record rally to more than $89 a barrel on Thursday, supported by
record weakness in the dollar, lingering geopolitical worries and tight inventories heading into winter.

US light, sweet crude for November delivery rose to $89.47 on the New York Mercantile Exchange, an increase of $2.07.

November gasoline rose 2.25 cents to $2.1691 a gallon, while Nymex heating oil futures rose 1.57 cents to $2.3346 a gallon.

Oil Refinery
Oil Refinery

In London, December London Brent crude was also higher on the ICE Futures exchange.

Oil's climb of about 13 percent since last week has renewed concerns that soaring energy costs could hinder world economic growth and raised a red flag for OPEC, which may call an early formal meeting to discuss output.

Though U.S. oil prices hit a nominal peak, they remain below the inflation-adjusted monthly average high of $101.70 hit in April 1980, a year after the Iranian revolution.

Dealers said Thursday's gains were tied to all-time weakness in the U.S. dollar -- a factor that has supported all dollar-denominated commodities -- alongside ongoing tensions between Turkey and Kurdish rebels in northern Iraq.

Although little oil is at risk from any military action by Turkey in northern Iraq -- Iraq's exports via its pipeline to Turkey have been sporadic since 2003 -- traders fear a conflict could endanger other supplies from the Middle East.

Adding support to prices, oil experts are anticipating tight fuel stocks during the winter heating season.

U.S. oil inventories are running about 4 percent below a year ago, while gasoline and distillate stocks in the world's biggest energy consumer are about 7 percent below last year, according to the latest government data.

The Bush administration has said oil prices are too high and pose a problem for low-income families. The U.S. economy is already facing head winds from the meltdown in the subprime mortgage market.

Thursday's gains were tempered by the possibility that the Organization of Petroleum Exporting Countries could boost crude oil output to cool the red hot market.

Nigeria's energy minister told Reuters on Wednesday that the group, which has already agreed to hike output by 500,000 barrels per day starting in November, could call another formal
meeting nearly three weeks ahead of schedule.

But on Thursday an Iranian official insisted there was no need for OPEC to boost production further.

"Geopolitics is the reason behind very high oil prices," said the official from OPEC's No. 2 producer. "Bringing calm to the international situation would help the price."

The rally in oil and other commodities has accelerated this month as central banks pumped money into financial markets to keep them operating smoothly through a global credit squeeze.

"A greater liquidity boom in Asia, created by lower interest rates, is helping fuel the demand for commodities," said Francisco Blanch, head of commodity research for Merrill Lynch.

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