By Margot Habiby and Robert Tuttle

Oct. 12 (Bloomberg) -- Crude oil rose to a record $84.05 a barrel in New York on concern Turkey may seek to quell Kurdish rebels by invading northern Iraq, a country with the world's third-largest oil reserves.

Turkish Prime Minister Tayyip Erdogan told reporters his country would pursue the Kurdistan Workers Party, regardless of diplomatic costs, according to an Agence France-Presse report. Northern Iraq holds some of the country's largest oil fields, including Kirkuk, the source of much of Iraq's exports.

``That's been the trigger, though physically, realistically, I think it doesn't have any possibility of affecting crude supply,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``It's a good headline.''

Crude oil for November delivery rose 61 cents, or 0.7 percent, to close at $83.69 a barrel at 2:50 p.m. on the New York Mercantile Exchange, a record settlement. Earlier, the contract touched $84.05, the highest since futures began trading in 1983.

Nymex futures were up $2.47, or 3 percent, this week. They are up 37 percent this year.

Today's intraday high was less than a dollar from the all- time inflation-adjusted high reached in 1981 when prices jumped because Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.

Commodity traders wield a greater influence on oil prices than Saudi Arabia and the world's other big suppliers, U.S. Energy Secretary Samuel Bodman said today.

``The suppliers, to some degree, have lost control of the pricing,'' Bodman told reporters in Washington.

Traders, Pricing Control

Markets can move more on emotions than the fundamentals of supply and demand as traders take greater control of prices, Bodman said.

``It's all about money flow,'' IAF's Cooper said. ``There is money and lots of it chasing commodities and thus prices are moving higher.''

Brent crude oil for November settlement rose 40 cents, or 0.5 percent, to close at a record $80.55 a barrel on the London- based ICE Futures Europe exchange. Brent was up $1.65, or 2.1 percent, this week.

Turkey's government will present a bill to parliament by next week authorizing a possible incursion across the border within a year, Erdogan said Oct. 10. Turkey said this week it would launch a crackdown on the Kurdistan Workers Party, or PKK, after rebels killed 15 soldiers in southeastern Turkey. That's the region of a two-decade war with the autonomy-seeking PKK in which about 40,000 people, mainly Kurds, have died.

Saudi Arabia has the world's largest reserves of crude, followed by Iran and Iraq. Iraq produced 2.075 million barrels of crude oil a day in September, according to Bloomberg estimates.

Effect on Supply

``At the end of the day, even if Turkey does cross the border, it's not going to mean anything to the supply of oil,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut.

U.S. crude oil inventories fell 1.67 million barrels to 320.1 million barrels in the week ended Oct. 5, the first decline in three weeks, a U.S. Energy Department report showed yesterday.

In Cushing, Oklahoma, the main U.S. supply depot, inventories rose 1.1 percent to 18.6 million barrels, the second straight weekly increase, the report showed. Supplies fell to their lowest since December 2005 in the week ended Sept. 21.

``Yesterday was a pretty dramatic day'' on the Nymex, Armstrong said. Some people think ``the move was unjustified given that crude inventories at Cushing rose. It is reasonable to expect a little bit of a pullback.''

Oil May Fall

Crude oil may decline next week on speculation that higher output by members of the Organization of Petroleum Exporting Countries and falling demand will bolster stockpiles.

Twenty-one of 35 analysts surveyed, or 60 percent, said oil prices will fall through Oct. 19. Eight, or 23 percent, said prices will rise and six said there will be little change. Last week, a record 75 percent of respondents said oil would fall.

OPEC's daily shipments of crude oil will rise 2.8 percent in the four weeks to Oct. 27 from the previous month, consulting company Oil Movements said. The group will load 24.49 million barrels a day, up from 23.82 million.

``As OPEC is rewarded with oil in the low-to-mid $80s, they have all the incentive to pump it and get it shipped out,'' said James Cordier, president of Liberty Trading Group in Tampa.

A two-day oil workers strike in Nigeria was called off yesterday without affecting exports from Africa's largest oil producer.

To contact the reporters on this story: Robert Tuttle in New York at rtuttle@bloomberg.net ; Margot Habiby in Dallas at mhabiby@bloomberg.net .

Last Updated: October 12, 2007 16:02 EDT

Of course we based these thoughts on the general idea that nothing very spectacular was going to happen in the crude oil markets between now and Christmas. No attack on Iran. No major hurricanes. No more shut-ins in Nigeria and so on. This idea appears to be coming true.

The closer we get to Christmas the less time there is to fabricate an assault on the Iranian theocracy and their huge oil and gas reserves, sorry, we mean “nuclear weapons programme.” There is more output coming from Nigeria with some Forcados output back on stream and the hurricane season appears to be drawing to a close with only poor Mexican people on the receiving end. And who in the market place cares about them?

So then why is crude oil touching its record highs? Banging hard up against $84 per barrel and not looking like it is going anywhere down, anytime soon. So, let us suppose that - shock horror - the price does not fall in the fourth quarter. What would the reasons be?

Well, firstly production is not increasing but demand is. It sounds a bit obvious but the much vaunted hikes in output from companies such as Exxon [NYSE:XOM], ConocoPhillips [NYSE:COP], BP [NYSE:BP] and the rest have simply not materialised. They assured us that they would be producing extra barrels to sate the world’s ever growing desire for hydrocarbons but due to a series of “mishaps” and “project delays” those extra barrels have never arrived. Meantime a world addicted to oil (and gas) continues to consume even more.

Since 2003 companies and countries have been telling us they would produce more “organically” by finding new deposits, or by using technology, to get more out of existing proven reserves. Outside of the odd success story like Marxist Angola, they have palpably failed to do so.

The free marketers - wrecking the world with their failed political ideology - told us that as oil and gas became more expensive this would trigger a wave of new output. It is the way the market works; we do not need communist rubbish such as “planning.” Gosh no! The market would prevail. But it has not.

The fact is that the oil industry has had plenty of time to bring on new assets and it has failed to create any major supply cushion. Replacing the depletion rate of 84 million barrels per year, a conservative 3.4 million barrels per day annualised, has simply overwhelmed market players - market players who are also highly interested in maintaining scarcity to boost their own profits.

So, the run up to Christmas should be an interesting one. Rather than the market being shorted, as we still maintain, the fall in stockpiles in the U.S. this week could herald another step up as we march towards a peak in production.

Just like when OPEC lost control of the crude market on the upside in 2004 - they can now only influence the floor price - if the greed of the market players is unable to pull the price back down, it will not be because they do not want to try. It will be because they cannot.

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Peak Oil Passnotes: $100 Oil?

By Edward Tapamor
12 Oct 2007 at 01:11 PM GMT-04:00

PARIS (ResourceInvestor.com) -- When this column turns away from baiting peak oil nihilists - and it is not hard - we often like to take a look at the market for crude oil. As you know we like to throw in a prediction now and again, our current one being that the WTI price at Cushing in the U.S. will fall to $66.60 at Christmas.

We based that thought on the general motivator behind market economics, the greed and the centralisation of power of trading institutions and the people who make them up. The idea being that, in order to get huge bonuses and the ability to buy your house off you when you lose your shirt, the crude oil market will get shorted to pieces. Volatility brings profits. Profits bring bonuses. Bonuses get your house off you and stick you in the gutter. That is free markets. “The freedom to starve,” as Alfred Sherman founder of the Centre for Policy Study put it.

At last, a government has a go at peak oil!!

Hello. Webdiary has been banging on about the dangers of peak oil for years now, largely due to the efforts of Ian McPherson, who went on to found sydneypeakoil. The problem of quickly diminishing oil supply has been known about for decades, and was one of the reasons Dick Cheney wanted to invade Iraq. But Australian governments have buried their heads in the sand, to the medium and short term detriment of their citizens.

Yesterday, the Queensland Government issued a report on peak oil, after lots of good work behind the scenes by activists. I'm hoping to publish a report on that work soon. Here is the Queensland minister's statement. The full report is here.

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Minister for Sustainability, Climate Change and Innovation
The Honourable Andrew McNamara

Thursday, October 11, 2007

FUTURE OIL SUPPLY UNCERTAINTY HIGHLIGHTED

A report tabled in State Parliament today highlights the need for Queensland industry, primary producers and communities to lessen their dependence on imported oil supplies.

The report – Queensland’s Vulnerability to Rising Oil Prices – was tabled by the Minister for Sustainability, Climate Change and Innovation, Andrew McNamara, who authored the report as a backbencher before his appointment as a Minister last month.

Mr McNamara said the report canvassed a range of options for reducing Queensland’s reliance on oil imports, from reducing our demand to developing alternate energy sources.

“I’m now in the unique position, as the Minister for Sustainability, Climate Change and Innovation, of having to co-ordinate a whole-of-Government response to my own report,” Mr McNamara said.

“Obviously, as the report author, I have some ideas on what needs to be done, based on what I discovered as part of preparing the report, and the report makes a range of recommendations.

“However, the most important thing I learned was that, while further analysis needs to be done, this issue is both real and imminent.

“The focus of the report was the concept of peak oil – the point at which maximum world oil production is reached - which is predicted to lead to shortages and consequent significant price increases.

“If nothing changes in our energy mix and demand patterns after that point, we can expect significant liquid fuel price increases, and price increases in those things that are made from oil such as fertilizer and plastics and those things that rely on oil such as agriculture, construction and transport.

“The Taskforce sought to present the most likely time frame for peak oil, to assess its impact on the mining, transport and primary industry sectors, and then recommend options to minimise the impact on Queensland.

“The report concludes that the overwhelming evidence is that world oil production will peak within the next 10 years.

“The report recommends that a prudent risk mitigation approach requires a mix of initiatives such as:

• reduction in consumption of liquid fossil fuels;

• encouraging the development and use of alternative fuels, technologies and strategies; and

• preparation for demographic and regional changes, as Queenslanders change travel, work and living habits in response to rising fuel prices.

“The future availability of fossil fuel and alternate energy supplies is one of the main sustainability issues facing society today.

“The recommendations are preliminary, and more detailed analysis including detailed modelling of the downstream impacts and substitution effects of the various proven and evolving alternative energy technologies will be a necessary next step.”

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Energy forum: Peak oil and hybrids

By Linda Williams/TWN Staff Writer

Article Launched: 10/12/2007 09:42:04 AM PDT