Oil jumped nearly 3 percent to a record over $86 a barrel on Monday as fresh tensions in the Middle East added to worries of a supply crunch when cold weather stokes up heating demand this winter.
U.S. crude settled $2.44 higher at $86.13 a barrel in its fifth straight session of gains, after hitting an all-time peak of $86.22. London Brent crude rose $2.20 to $82.75.
A run at $90 is now seen as reasonable, Citigroup analysts said in a research note.
Though oil prices have more than quadrupled since 2002 on the back of surging demand from developing economies, they remain below the inflation adjusted peak around $90 a barrel struck after the Iranian revolution in 1979.
Dealers said oil's climb on Monday was supported by rising tensions between Turkey and Kurdish separatists in northern Iraq that have dimmed the prospects of a recovery of Iraqi oil exports from the region.
Turkey's cabinet on Monday asked parliament for permission to launch an attack on Kurdish separatists in northern Iraq, just days after witnesses reported that Turkey had shelled an Iraqi village.
The escalation in Turkey could threaten supplies both from Ceyhan and the Baku-Ceyhan pipelines, jeopardizing well over 1 million barrels per day of supplies, said Nauman Barakat, senior vice president at Macquarie Futures USA.
Oil has held over $80 a barrel for most of the last month, fueled by sturdy world energy demand growth, tight inventories in consumer nations heading into the winter heating season and record weakness in the U.S. dollar.
Fund-led buying backed by fundamentals is pushing the market to new records, said Phil Flynn of Alaron Trading in Chicago. Funds are seeing a good demand outlook for the fourth quarter and are embracing it.
Oil and other commodities have also been driven up by traders hedging against the weaker U.S. dollar.
International Monetary Fund Managing Director Rodrigo Rato said the greenback, which has been dipping to fresh lows against other currencies, was still overvalued.
We still see room for further depreciation and if you look at future markets, you will see that markets are more or less seeing the same, Rato told reporters Monday.
Other commodities also jumped on Monday. Gold struck a 28-year high while platinum also hit a record.
Despite lofty oil prices, the economy of top consumer the United States has been remarkably resilient, the country's energy secretary said Friday.
The Organization of the Petroleum Exporting Countries (OPEC) said Monday the United States looked more likely to avoid a sharp economic downturn and raised its forecast for demand for its crude this winter.
The group that pumps more than a third of the world's oil is already set to boost supplies by an extra 500,000 barrels a day from November 1.
(Additional reporting by Santosh Menon in London and Jonathan Leff in Singapore)