LONDON - Oil prices headed back towards record highs Friday with New York crude nearing 99 dollars as the market reacted to Turkey's move into northern Iraq amid persistent concerns about supply, traders said.
Oil fell heavily on Thursday having spiked to a record high of 101.32 dollars earlier this week on fears about supply disruptions around the globe and the Turkish incursion added to those concerns, they said.
New York's main contract, light sweet crude for delivery in April, rose 59 cents to 98.82 dollars a barrel Friday.
Brent North Sea crude for April delivery jumped 98 cents to 97.22 dollars.
"Oil futures were higher after Turkey's military announced they had initiated a land offensive backed up by fighter jets into northern Iraq," said Sucden analyst Nimit Khamar.
"These fresh geopolitical developments brought oil futures back into positive territory."
Turkish troops entered northern Iraq late on Thursday to crack down on Kurdish terrorists after fighter jets struck at their bases.
The Turkish army gave no details on the scale of the operation but the NTV news channel said 10,000 troops penetrated 10 kilometers (six miles) into the autonomous Kurdish north of Iraq.
"While getting more overt and increasing in scale, the dynamics of the dispute do not seem to have changed particularly and in our view they are more illustrative of the instability of regional politics in north Iraq rather than posing any direct threat to oil flows in the regions," said Barclays Capital analyst Kevin Norrish.
Oil prices rose to record highs earlier this week on speculation that OPEC may decide to cut crude output at a meeting on March 5 and over geopolitical tensions between Venezuela and the United States.
A Texas oil refinery explosion and bitter cold weather in the United States, the world's biggest consumer of heating fuel, also underpinned prices, traders said.
Despite supply worries, the Organisation of Petroleum Countries could cut output at its meeting in Vienna next week because demand for oil drops in the second quarter as winter ends in the northern hemisphere.
One OPEC member is Venezuela, which has reduced supplies to the United States owing to a row with US energy giant ExxonMobil, the world's biggest oil company.
ExxonMobil says it has won court orders in New York, London, the Netherlands and the Netherlands Antilles freezing some 12 billion dollars of assets in those jurisdictions from Venezuela's state-owned oil producer PDVSA.
The legal battle relates to ExxonMobil's bid to secure compensation after Venezuela's government nationalised key oil fields in the Orinoco basin, including two ExxonMobil operations.
burs/bcp/rfj/bmm
02/22/2008 13:44 GMT