Oil prices may be close to near-term peak

NEW YORK (Reuters) - U.S. oil may hit a near-term ceiling soon as market fundamentals should not support prices much higher than the current record $85 a barrel levels, the director of Terra Verte Trading LP said on Monday.

"I'm thinking that $86 or $87 is pretty close to the top with the information we have right now," said Andy Weathers of the Houston-based fund.

U.S. crude oil futures touched a record high $85.30 on Monday as part of a surge that has added nearly $15 to prices since late August.

Concerns about potential supply shortfalls this winter and the weaker U.S. dollar have helped fuel the rally, while worries over mounting tensions between Turkey and northern Iraq have added geopolitical concerns over the past week.

But Weathers said supply and demand levels do not support a rise much further and a top may be close if geopolitical concerns subside.

"To me, it appears that if we can digest this, the market should sell back off," he said in a telephone interview.

"I think it is a little overpriced right here."

Oil prices have more than tripled since 2002 as part of a wider commodities rally driven in part by growing demand from China and India.

Investors eager to cash in on the rise have poured billions of dollars into commodities and energy, through actively managed funds but also through passive, long-only index funds such as the giant S&P Goldman Sachs Commodity Index

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Weathers said the growing popularity of the passive indexes, which sell front-month commodity contracts and buy second month contracts at a predetermined time each month, has altered markets and the shape of the oil futures curve.

"There is a lot of money flowing into those products which are going to tend to skew this market so it is a little different market than it was five years ago in my opinion."