Simmering tensions between Turkey and Kurdish separatists in northern Iraq pushed prices to record highs on Friday night.

Oil prices on Friday were left around 40% higher than they were in January, amid fears that Turkey will launch attacks on Kurds demanding their own homeland in northern Iraq.

Opec is increasing production by 500,000 barrels per day from November 1, an increase much smaller than expected

This coupled with higher global demand and Opec's lower than expected increase in production of only an extra 500,000 barrels per day has raised prices to unprecedented levels.

The price of oil rose above $85 for the first time in London trading on Monday as tension between Turkey and Iraq intensified concerns about shortages of supply over the winter and sparked fresh speculative buying.

Ministers from leading industrial nations are likely to urge the oil cartel Opec to increase production and be more open about its stocks of crude amid growing fears that the quadrupling of the price of crude since early 2003 will push up inflation.

Oil has remained above $80 for most of the past month after soaring from below $70 in mid-August, fuelled by a mixture of supply concerns ahead of winter and record lows for the dollar, which has driven speculators to buy oil as a hedge.

By Wednesday the price of oil hit $88 per barrel and hit a record above $90 a barrel on Friday, putting further intense upward pressure on petrol prices, industry costs and inflation, spurred on by winter supply worries and the weakening U.S. dollar.

Calls for an increase

Alistair Darling, the Chancellor, led calls for the Opec oil cartel to boost production to help to rein in prices, as the latest increase added to anxieties over global prospects vexing finance ministers from the Group of Seven leading economies meeting in Washington yesterday.

As G7 members expressed heightened concern over oil prices breaking through the $90 level, Mr Darling said that Opec should recognise the impact on world economic outlook and act. “The causes of the high prices we face today are many. It is partly an issue of supply and while the [previous] Opec increase we have seen was welcome, it does not go far enough,” the Chancellor said before the G7 talks.

"In the current conditions and oil market uncertainties, it is unlikely there will be an increase in Opec production or that it would have an impact on prices," Javad Yarjani, head of Opec affairs at Iran's Oil Ministry, told the ministry's news Web site SHANA.

"Price rises are not due to a decrease in oil supply and centres of supply have not been facing problems but rather it is more because of geopolitical issues," he said.

The amount of oil produced in northern Iraq is actually very small while the major pipeline linking the Iraqi town of Kirkuk, just south of the Kurdish region, with Turkey has been shut for long periods since the 2003 invasion of Iraq.

But it is fears that the dispute may escalate and threaten oil output in the wider region - Iraq, Iran, Kuwait and Saudi Arabia between them account for 20% of global supplies - which have fanned the price rises.

In particular, there are concerns about potential Kurdish reprisals on an important pipeline in Turkey, which delivers 700,000 barrels a day from Azerbaijan to the port of Ceyhan.

Soaring demand

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The price of oil has practically tripled since 2002 due to increased global demand and various geopolitical factors

Demand is at an all-time high, fuelled by the continued breakneck economic expansion of the Indian and Chinese economies.

With more than a billion people in each country, and sustained growth rates of 8% in India and 10% in China, manufacturers and consumers are sucking in energy at an ever-increasing rate.

China overtook Japan as the world's second-largest consumer of oil in 2003 and is closing in on the US, with demand for oil growing at about 15% a year.

Analysts worry global demand for oil is so intense that supplies may not keep pace.

Demand will rise by an average of 2.2 million barrels a day next year, the International Energy Agency says, compared with the 1.5 million-barrel rise seen in 2007.

It says annual demand will rise 2% up to 2012, while other projections suggest demand could soar from about 90 million barrels a day to as much as 140 million over 25 years.

What happens next?

Many people scoffed when analysts from investment bank Goldman Sachs said in 2005 that prices could eventually top $100 a barrel.

This now seems a real possibility, although analysts caution that the market remains volatile.

"There is every reason to suppose the price could hit $100," says Platt's John Roberts.

"At the same time, one good thing goes right and the price goes tumbling back down to $70 or $60."

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Sources: http://news.bbc.co.uk | http://business.timesonline.co.uk | http://www.guardian.co.uk

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