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Oil prices reach new high

15/10/2007

World oil prices have climbed to record new highs, fuelled by growing tensions between Turkey and Kurdish rebels in northern Iraq.

In Europe the price of Brent crude soared to $81.93 (£40.12) a barrel in morning trade, while the cost of US light crude reached $85.19 (£41.71).

The rise came after reports that Turkish forces shelled an Iraqi border village overnight, with oil prices having already soared on fears that Turkey could take military action against Kurdish rebels in the north of the war-torn country.

US secretary of state Condoleezza Rice has urged Turkey to show restraint in response to attacks carried out by Kurdish rebels, who want the establishment of an independent homeland incorporating territory in northern Iraq and eastern Turkey.

But the price of oil has still risen on fears that any incursion by Turkey could disrupt supplies from the region of Iraq.

"Whilst the action would have no direct impact upon oil production we have seen, through events such as the Israeli attacks in Lebanon last year, how destabilising influences in the Middle East, with no direct bearing oil production, result in a bullish move in crude prices," explained Paul Harris, head of natural resources risk management at Bank of Ireland Global Markets.

Oil prices have remained above the $80 (£39) a barrel mark for most of the past month, despite the Organisation for Petroleum Exporting Countries (Opec) pledging to make an additional 500,000 barrels of crude available on the market each day from November.

Last week prices climbed higher on news of lower-than-expected US crude stocks, while the start of the hurricane season on the other side of the Atlantic previously saw prices rise on fears that bad weather could hit oil production in the Gulf of Mexico.

In its latest monthly report today Opec said that geopolitical developments had "revived fear of a potential supply shortfall ahead of seasonal stockpiling".

But despite the most active part of the hurricane season having passed, the organisation warned that "uncertainties" remained that could influence oil prices over the coming period.

"Apart from geopolitics, the big wild cards remain winter weather and the extent of the slowdown in the US and global economy in the coming months. Equally important is the performance of non-Opec supply, which experienced continuous downward revisions this year," Opec warned.

News of rising oil prices will not be welcomed by British motorists, who could see prices at the pump rise as a result.