Oil crosses $94 as Turkey attacks Kurds

Concerns of disrupted supply rife; US stock report on Wednesday likely to show decline in inventories

Crude oil traded above $94 a barrel in New York on concerns that shipments from Iraq may be disrupted after the Turkish military attacked bases of Kurdish rebels in northern Iraq.

Turkish jets bombed eight sites in northern Iraq on Wednesday where the military suspected Kurdish rebels were setting up camp, the military said in a statement.

The strikes this morning targeted mountain caves and other shelters in the Zap region of neighbouring northern Iraq. Iraq exports crude oil through its northern pipeline to Turkey.

"There are a lot of flashpoints being created by the geopolitical flux," said V Raghuraman, senior adviser of energy at the Confederation of Indian Industry, the nation's biggest industry body.

"There are so many flare-ups "" Iraq, Nigeria, Iran and Venezuela "" that I don't see any silver lining now. Prices will stay around the current levels."

Crude oil for February delivery traded at $94.22 a barrel, up 9 cents, in electronic trading on the New York Mercantile Exchange at 9:48 am London time. The contract traded as high as $94.80. Prices have risen 54 per cent this year.

Nymex crude futures reached $99.29 a barrel on November 21, the highest since trading began in 1983. The number of contracts traded fell 76 per cent to 44,998 on December 24 from December 21.

Iraq exported 1.9 million barrels of oil a day in September compared with 1.69 million barrels a day in August, according to data supplied by the US Department of State. The Middle East oil producer holds the world's third-largest crude oil reserves.

Brent crude for February settlement was at $92.87 a barrel, up 17 cents, at 9:48 am London time, after rising as high as $93.51 a barrel on London's ICE Futures Europe exchange.

Turkish Prime Minister Recep Tayyip Erdogan yesterday said attacks on bases of the Kurdistan Workers Party, or PKK, in Iraq would continue.

Erdogan told lawmakers of his Justice and Development Party on Wednesday that the military was targeting only PKK. News reports have cited Iraqi Kurdish leaders as saying that "several" civilians have been killed.

Turkey launched bombing raids against PKK in Iraq on December 16 and 22, and briefly sent troops over the border. As many as 175 PKK fighters were killed in the first of those attacks, the Turkish military said.

"That has made the market nervous," said Tetsu Emori, a fund manager at Astmax Futures in Tokyo. "Geopolitical issues are still out there keeping the upside risks intact."

Crude oil also rose on speculation that a US Energy Department report tomorrow would show inventories in the world's largest energy user have fallen for a sixth week.

Crude-oil stockpiles dropped 1.63 million barrels in the week ended December 21, according to the median of responses by eight analysts surveyed by Bloomberg.

The department is scheduled to release its weekly report on inventories on December 27 at 10:30 am in Washington, a day later than usual because of the Christmas holiday yesterday.

"Prices are being supported by speculation that US inventory data will continue falling," said Masahiko Sato, a senior analyst at Ovalnext Corp in Tokyo.

Inventories of distillate fuel, a category that includes heating oil and diesel, fell 750,000 barrels from 129.4 million the prior week, according to the survey. Seven of the analysts forecast a decline and one said there was no change.