Oil Rises to Record Above $92 as U.S. Pressures Iran's Military

By Angela Macdonald-Smith and Christian Schmollinger


Oct. 26 (Bloomberg) -- Crude oil rose above $92 a barrel for the first time in New York after the U.S. accused the Iranian military of supporting terrorism and stepped up pressure on foreign companies to cut ties with the Middle East oil producer.

Oil soared to a record as Turkey warned of a wider military assault into northern Iraq and called on the U.S. to join the fight. Turkey's army shelled suspected militant camps on the Iraqi side of the border.

``Even if the Iran and Iraq situations were resolved overnight, you still have the fundamental problem that demand for oil is continuing to strengthen, '' said Gavin Wendt, senior resources analyst at Fat Prophets in Sydney. ``Only a couple of months away you've got the northern hemisphere winter and the market is nervous about whether there is enough oil.''

Crude oil for December delivery rose as much as $1.76, or 2 percent, to $92.22 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It traded at $92.18 at 2:46 p.m. Singapore time. Prices are 51 percent higher than a year ago.

Yesterday the contract jumped $3.36, or 3.9 percent, to $90.46 a barrel, a record close. It was the biggest one-day gain since April 23.

Record oil prices are raising concerns that inflation will rise and lower growth in the global economy. The Group of Seven industrial nations said in a statement last week that high crude levels will moderate growth going forward.

Singapore Airlines

Brent crude oil for December settlement rose as much as $1.82, or 2.1 percent, to a record $89.30 a barrel on the London-based ICE Futures Europe exchange. It was at $89.25 at 2:47 p.m. Singapore time. The contract, the benchmark for two- thirds of global supplies, closed yesterday up $3.11, or 3.7 percent, at $87.48 a barrel.

The Bush administration yesterday announced new sanctions against Iran that designate the Iranian Revolutionary Guard Corps as a proliferator of weapons of mass destruction and its Quds force as a supporter of terrorism.

Secretary of State Condoleezza Rice, who joined Treasury Secretary Henry Paulson in announcing the sanctions, said the steps were designed ``to increase the costs to Iran of its irresponsible behavior.''

The U.S. is trying to get Iran to halt uranium enrichment that it suspects is aimed at developing nuclear weapons. Iran, which holds the world's second-largest oil and natural gas reserves, says it wants to enrich uranium to produce electricity. The dispute has bolstered oil prices since January 2006 because of concern that oil shipments from the country might be cut.

Turkey Warning

Turkey warned of a wider military assault into northern Iraq and called on the U.S. to join the fight as the army shelled suspected militant camps over the Iraqi border.

Turkey won't stand by after Iraq allowed members of the Kurdistan Workers' Party, or PKK, to use bases on Iraqi territory for attacks that left 42 Turks dead this month, President Abdullah Gul said yesterday in Ankara. Shelling by Turkish artillery of the Iraqi side of the border continued yesterday, CNN Turk reported.

``The U.S. sanctions against Iran seem to be pushing things to some sort of confrontation,'' said Fat Prophet's Wendt. ``When you're talking Iran and Iraq, two of the biggest holders of oil reserves, no wonder markets are nervous.''

Dollar Effect

The dollar approached a record low against the euro after reports showed U.S. orders for durable goods fell unexpectedly and initial jobless claims were higher than forecast, signaling economic growth may weaken. Slower growth supports the argument for the Federal Reserve to cut interest rates next week.

China yesterday said its economy, the biggest contributor to global growth, expanded 11.5 percent in the third quarter from a year earlier.

``The currency is really holding up commodities market generally,'' ANZ Bank's Pervan said. ``Dovetailing that with strong Chinese growth yesterday, it's enough to give oil that extra momentum.''

OPEC `Surprising'

The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, doesn't plan additional output even with record oil prices, Venezuelan Energy Minister Rafael Ramirez told reporters in Caracas yesterday.

``There is enough oil in the market,'' Ramirez said. OPEC is ``not planning to increase production.''

OPEC's refusal to consider an increase is surprising, said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. in Melbourne.

``I wouldn't have thought that the majority of producers would be happy with prices above $90,'' Burg said. ``I would have thought that the force of Saudi Arabia and its more dovish supporters might have brought a bit more oil on.''

``There seems to be a consensus view that there's enough oil in the market, it's really just concerns that are driving it,'' Burg said.