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Oil prices barrel to record of $86.13

As demand rises, non-OPEC countries' production is not keeping up.

NEW YORK - Oil prices closed above $86 a barrel Monday for the first time after OPEC said crude production by nonmember countries is likely falling even as global demand for oil is rising.

Prices were also pushed up by concerns Turkish forces will pursue Kurdish rebels into Iraq, disrupting oil supplies, and by technical buying by investment funds.

Despite the Organization of Petroleum Exporting Countries' decision last month to boost its production by 500,000 barrels per day starting next month, the rest of the world will likely produce 110,000 fewer barrels of oil per day than expected in the fourth quarter, OPEC said in a report.

At the same time, fourth-quarter demand for crude oil will grow by 100,000 barrels a day over last year, OPEC said.

The estimates add to sentiment that crude supplies are tight. Last week, the Energy Department reported that domestic crude inventories fell during the week ended Oct. 5, when they had been expected to rise. And the International Energy Agency concluded that oil inventories held by the world's largest industrialized countries have fallen below a five-year average.

"The fact that U.S. crude inventories fell yet again ... reinforced the market's underlying concern that demand has yet to slow down sufficiently to allow stocks to build, while supply is also perceived to be struggling to catch up," wrote Edward Meir, an analyst at MF Global UK Ltd., in a research note.

Light, sweet crude for November delivery jumped $2.44 to settle at a record $86.13 a barrel on the New York Mercantile Exchange after rising as high as $86.22, a record trading price.

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 today.

The Turkish government's decision Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked worries that hostilities will disrupt oil supplies, analysts said.

"Oil out of the northern (Iraq) fields has been erratic for some time," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. "But complete disruption would definitely be bullish for this market."

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday show that speculative buying of oil contracts increased last week.

[Last modified October 16, 2007, 00:45:40]