Oil thundered more than $2 to a new peak above $88 a barrel on Tuesday, extending a nine-dollar rally since last week on tight supplies, strong demand and growing tensions in northern Iraq.
The record surge raised alarm bells for producer group OPEC, which voiced concern over the high price and blamed rampant speculation by big money investors rather than any shortage of supply.
"While the Organization does not favour oil prices at this level, it strongly believes that fundamentals are not supporting current high prices and that the market is very well supplied," it said in a statement.
At 5:20 p.m., U.S. crude was up $1.71 at $87.84 a barrel after rising as high as $88.20. London Brent was up $1.60 at $84.35 a barrel.
Oil, which has set records for three straight days, is closing in on the inflation-adjusted high of $90.46 seen in 1980, the year after the Iranian revolution and at the start of the Iran-Iraq war. Prices this year have averaged $67.
Investors said oil's rally was supported by tensions between Turkey and Kurdish separatists in northern Iraq, sturdy world energy demand growth, tight inventories in consumer nations heading into winter and unprecedented weakness in the U.S. dollar.
"This market has it all right now," said Peter Beutel, president of energy trading consultant Cameron Hanover. "It has supply concerns, projected increases in demand, dollar weakness, momentum and political fears."
The Turkish cabinet asked parliament Monday for permission to launch an attack on Kurdish separatists in northern Iraq, dimming hopes for a recovery in Iraqi oil exports via Turkey, which have been sporadic since 2003.
Turkey is also now a major conduit for Caspian oil exports to the Mediterranean. ( Reuters )