Oil Near $96 on Turkey Strikes, Supply Outlook

Oil prices jumped Wednesday on supply concerns stoked by a new round of Turkish airstrikes in northern Iraq and a growing belief that domestic oil inventories fell last week.

Turkish Soldiers
Turkish Soldiers

Turkey's military said its warplanes bombed eight suspected Kurdish rebel positions in northern Iraq on Wednesday. It was the third Turkish strike inside Iraq in less than two weeks. Oil traders worry that the rebels could cut oil supplies from Iraq in retaliation.

The new attacks came as oil investors awaited inventory data from the Energy Department's Energy Information Administration that is expected to show crude supplies fell by 1.2 million barrels last week, the sixth straight weekly decline.

The inventory numbers will be released on Thursday this week, a day late due to the Christmas holiday.

Light, sweet crude for February delivery rose to near $96 a barrel Wednesday on the New York Mercantile Exchange after earlier rising to $96.54, a one-month high.

In London, February Brent crude rose rose similarly on the ICE Futures exchange.

At the pump, meanwhile, gas prices inched up 0.1 cent overnight to a national average of $2.973 a gallon, according to AAA and the Oil Price Information Service. Gas prices have stabilized after falling nearly 14 cents since mid-November, when they peaked above $3.11 a gallon as oil prices approached $100 a barrel.

Trading in crude futures Wednesday was light, less than 10 percent of normal volume, meaning the sharp price move could be exaggerated, said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos.

"You're not on track for a normal trading day," Rafield said.

Indeed, Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill., noted that recent Turkish airstrikes have not elicited such a strong price response on heavier trading days.

Analysts said the weaker dollar also boosted oil prices. Crude futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. Many observers blame oil's rise last month to near $100 on speculators driven to oil futures by the weaker dollar.

In its weekly report, the EIA is also expected to show that inventories of distillates, which include heating oil and diesel fuel, fell by 600,000 barrels last week, according to the average estimate of analysts surveyed by Dow Jones Newswires. Gasoline stockpiles are expected to rise by 1.6 million barrels, while refinery activity is expected to grow by 0.6 percentage point to 88.4 percent of capacity.

Other energy futures were mixed Wednesday. January heating oil futures rose 7.51 cents to $2.6698 a gallon on the Nymex while January gasoline futures rose 7.9 cents to $2.463 a gallon. January natural gas futures lost 2.7 cents to $6.998 per 1,000 cubic feet.