October 12, 2007 / 12:56 AM / 12 years ago

Oil hits record $84 on supply concerns

NEW YORK (Reuters) - Oil hit a record above $84 a barrel on Friday on mounting tensions between Turkey and northern Iraq and lingering supply concerns ahead of the Northern Hemisphere winter.

An unoccupied oil rig is seen off the coast of Louisiana in the Gulf of Mexico, September 1, 2005. REUTERS/Chris O'Meara

U.S. crude settled up 61 cents at $83.69 a barrel, after trading up to a record $84.05 a barrel earlier. London Brent crude climbed 40 cents to $80.55 a barrel.

Though oil prices have quadrupled since 2002, when adjusted for inflation the price is still below the $90-a-barrel peaks at the time of the Iranian revolution in 1979.

Prices jumped after the Kurdistan Workers Party said it would move back into Turkey from northern Iraq and target the Turkish government, highlighting tensions in a region that pumps a third of the world’s oil.

Iraq’s oil exports through Turkey have been virtually idle since the U.S.-led invasion of Iraq in March 2003 due to sabotage attacks, and most of Iraq’s oil is exported from the country’s south.

The rising tensions added to worries of a supply crunch during the Northern Hemisphere winter after declines in U.S. and European fuel inventories.

The latest snapshot of oil supplies in top consumer the United States showed a 1.7 million barrel fall in crude oil stocks last week to the lowest level since January.

European oil stocks have also slimmed.

“I do think fundamentals are supportive of where the price is,” said Tony Dolphin, director of economics and strategy at Henderson Global Investors. “Demand continues to be boosted by the strength of the emerging economies. And not just China.”

U.S. Energy Secretary Sam Bodman said the U.S. economy has proved “remarkably resilient” to strong oil prices and that markets may not need a second hike in crude output from OPEC.

The Organization of Petroleum Exporting Countries agreed in September to boost crude supplies by 500,000 barrels per day starting in November. But many analysts have called the move insufficient to avert a squeeze this winter when cold boosts heating oil demand.

Adding support, U.S. retail sales rose solidly in September while a key inflation gauge remained muted, data on Friday showed, suggesting the economy retained some buoyancy despite concerns about a weakening housing sector.

Markets were also eyeing escalation tensions between Washington and Ankara, a crucial ally for the United States which relies on Turkey as a logistical base for the Iraq war.

Turkey’s prime minister, Tayyip Erdogan, said relations between Turkey and the United States are in danger over a U.S. resolution branding massacres of Armenians by Ottoman Turks during World War One as genocide.

Additional reporting by Richard Valdmanis in New York, Peg Mackey and Jane Merriman in London

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