Not much oil at risk from Turkey/Iraq tension

By Simon Webb - Analysis

DUBAI (Reuters) - Only a fraction of global oil supply could be immediately threatened by a Turkish incursion into northern Iraq, but crude prices have surged on concern any conflict may escalate and disrupt the flow from the Middle East.

U.S. crude futures hit a record high of $87.97 a barrel on Tuesday, a day after the Turkish government asked its parliament for permission to launch attacks on Kurdish separatists in northern Iraq.

The effect of the dispute was magnified in oil markets as it came against a backdrop of tightening supply, said Paul Horsnell, head of commodities research at Barclays Capital.

"I think it has been taken as totemic for a general series of potential supply risks," Horsnell said. "We're hardly talking about a large supply stream that is at threat here."

"The price rise is part of a trend that has been going on for quite a while, of tightening balances in the oil market. Inventories are thinning, so geopolitical concern is going to get a different response to say a year ago, when stocks were higher."

Oil prices have been above $80 a barrel for most of the past month amid concern that supply may be strained during peak winter demand.

THREAT

Iraq and neighboring major oil producers Saudi Arabia, Iran and Kuwait between them produce over 17 million bpd, around 20 percent of the world's supply. Any hint of those supplies being affected would send oil spiraling higher.