Oil prices end at record high
High demand, weak dollar and potential trouble between Turkey and Iraq push crude prices to $87.61 a barrel.
NEW YORK (CNNMoney.com) -- Oil prices settled at a fresh record high Tuesday on rising demand, a weak dollar and tensions between Turkey and Kurdish separatists in northern Iraq.
Light, sweet crude for November delivery rose $1.48 to settle at $87.61 a barrel on the New York Mercantile Exchange. Oil prices reached a new record trading high of $88.20 earlier in the session and eclipsed the record close of $86.13 a barrel set on Monday.
The Turkish government's decision Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked the worries about potential interruptions to oil supplies.
"Whenever there is any escalation in political tensions in the Middle East, oil markets become concerned," David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney, told the Associated Press. "There is production and there are pipelines that people worry may be affected if there are any issues in Iraq."
There have been several skirmishes along the Turkey-Iraq border already. Although oil coming out of the region has been erratic, a total disruption would send prices higher, analysts said.
Also Tuesday, November gasoline rose 0.34 cent to $2.1609 a gallon on the Nymex, while heating oil futures rose 0.68 cent to $2.314 a gallon. Natural gas for November rose 2.9 cents to $7.474 per 1,000 cubic feet.
In London, November Brent crude rose 95 cents to $83.65 a barrel.
At the pump, the average national price of a gallon of gas rose 0.2 cent overnight to $2.759 a gallon, according to AAA and the Oil Price Information Service. Retail prices have not jumped, as many analysts had expected, in response to oil's rally from $69 a barrel in late August to $83 a barrel in late September. But eventually, higher crude prices will result in higher pump prices, according to Andrew Lebow, a broker at Man Financial in New York.
"Consumers aren't reacting to high oil prices because they're not seeing it at the pump," he said.
Meanwhile, demand concerns have risen since reports in recent days from the Energy Department, the International Energy Agency and the Organization of Petroleum Exporting Countries have suggested oil supplies are flat or falling as demand is growing.
The surge in prices has also attracted lots of speculative investment money, further driving prices higher. And the tight supply and demand situation magnifies the price effect of geopolitical tensions, as there is less spare supply available globally to cover a disruption from someplace like Iran, Nigeria or Venezuela.
The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars.
Oil producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.
The dollar lost ground Monday to most major currencies before recouping some losses Tuesday.
Despite the gains, when adjusted for inflation, oil is still slightly cheaper than the $95 a barrel or so it would have been in the early 1980s.