Oil futures hit record after Mideast violence

Domestic oil inventories are expected to fall while
consumption rises.

NEW YORK (AP) — Oil futures jumped to a record above $97 a barrel Tuesday after bombings in Afghanistan and an attack on a Yemeni oil pipeline compounded the supply concerns that have driven crude prices higher in recent weeks.

Those concerns were also fed by a government prediction Tuesday that domestic oil inventories will fall further this year while consumption rises.

Oil was already up before news of the blasts in northern Afghanistan that killed at least 64 people and the attack in Yemen. Severe weather forecasts for the North Sea, expectations that domestic crude supplies fell last week and the weak dollar all contributed to the latest move upward.

Though Afghanistan doesn’t produce much oil, traders watch for the possibility that any escalation in the conflict there between U.S. armed forces and Islamic militants could spill over into other countries, disrupting oil supplies out of the Middle East.

John Kilduff, vice president of risk management at MF Global UK Ltd., noted that the attack in Yemen “has disrupted a pipeline that carries 155,000 barrels a day of crude.”

Meanwhile, investors believe crude supplies are declining in the U.S. Analysts surveyed by Dow Jones Newswires predict, on average, that crude oil inventories fell by 1.6 million barrels last week. The Energy Department’s Energy Information Administration will issue its weekly inventory report today.

Oil futures’ rise above $90 a barrel has been fueled in part by two weeks of unexpected declines in inventories.

On Tuesday, the EIA predicted oil consumption will rise in the fourth quarter and next year despite higher prices, and that inventories will fall.

“Strong demand, limited surplus capacity, falling inventories and geopolitical concerns continue to weigh on the market,” the EIA said in its monthly Short-Term Energy Outlook.

The weak dollar, which fell to a new low against the euro Tuesday, is also lifting oil prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Light, sweet crude for December delivery rose $2.69 to $96.67 a barrel on the New York Mercantile Exchange Tuesday after earlier rising as high as $97.10, a new trading record.

Natural gas for December delivery fell 19.7 cents to $7.802 per 1,000 cubic feet on the Nymex.

on predictions for mild temperatures next week in the Midwest and Northeast, and expectations that inventories, already at record levels, will continue to rise.