Oil moved back above $83 a barrel on Friday, within sight of all-time highs, on mounting tensions between Turkey and northern Iraq.

Prices jumped after Turkish PKK rebels said they would move back into Turkey from northern Iraq, highlighting tensions in a region that pumps a third of the world's oil.

U.S. crude rose 20 cents to $82.28 a barrel by 7:40 a.m. EDT. The previous day it traded as high as $83.76, close to a record $83.90 struck on September 20. London Brent crude rose 18 cents to $80.33.

Rebels from the outlawed Kurdistan Workers Party (PKK), fighting for an independent homeland in southeastern Turkey, also warned they would target Turkey's ruling AK Party and main opposition CHP.

Traders said the PKK statements had pushed prices higher.

Oil has held mostly above $80 a barrel for the past month, reflecting worries about shrinking fuel supplies that on Thursday sent U.S. heating oil prices to a new peak.

I do think fundamentals are supportive of where the price is, said Tony Dolphin, director of economics and strategy at Henderson Global Investors.

Demand continues to be boosted by the strength of the emerging economies. And not just China.

Really you have to go back to the early 1970s to find a time when all bits of the developing world economy were firing on all cylinders as they are at the moment, Dolphin said.

That is more than offsetting a bit of weakness in the U.S.


Strong demand seems to be mopping up inventories in both the United States and Europe.

The latest snapshot of oil supplies in top consumer the United States, for example, showed a 1.7 million barrel fall in crude oil stocks last week to the lowest level since January.

Supplies of distillates in the United States fell by 600,000 barrels.

Evidence for further rapid tightening of oil markets continues to mount, said Barclays Capital in a research note, pointing to a much larger than normal drop in crude and product inventories in Europe.

Market balance data confirm a severe tightening of the global oil market balance in Q3, Barclays said.

A decision by the Organization of Petroleum Exporting Countries to add 500,000 barrels per day of crude to the market starting in November has failed to dampen the market.

But on Thursday, the International Energy Agency said high oil prices were tempting consumers to switch to cheaper natural gas. The Paris-based agency cut its fourth-quarter demand growth estimate by 320,000 barrels per day to 2.03 million bpd.

The weak U.S. dollar continues to support oil and commodity prices, although the dollar recovered some ground against the euro early on Friday.

Oil and other commodities are also benefiting from a growing investor appetite for these assets to diversify portfolios.

There is an ongoing debate about diversifying out of equities and bonds and into other assets like commodities, said Dolphin. Every so often someone takes the plunge.