Oil thundered towards $88 a barrel on Tuesday, hitting a new record and extending a rally that has added eight dollars in as many days on tight supplies, strong demand and tension in northern Iraq.

Oil is closing in on the inflation-adjusted high of $90.46 seen in 1980, the year after the Iranian revolution and at the start of the Iran-Iraq war. Prices this year have averaged $67.

At 4:05 a.m. EDT U.S. crude was up $1.42 at $87.55, off a high of $87.97. London Brent was up $1.15 at $83.90.

Oil has set a series of records over the past three days.

Investors have cited rising tensions between Turkey and Kurdish separatists in northern Iraq, sturdy world energy demand growth, tight inventories in consumer nations heading into winter and unprecedented weakness in the U.S. dollar.

It is difficult to find any bearish factors now. There's the Iraq-Turkey issue, a weak dollar, and inventory levels for U.S. heating oil are much lower than a year ago, said Tetsu Emori, fund manager at Japan's Astmax Futures Co. Ltd.

U.S. distillate inventories, including those for heating fuel, are expected to ease by 300,000 barrels for the week ended October 12, a Reuters poll ahead of the release of the Energy Information Administration's weekly data showed.

The latest flurry of buying extends the market's rise from below $70 in mid-August, a rally fuelled by the record lows in the U.S. dollar, sturdy world energy demand growth and tight consumer nation inventories heading into the winter.

A possible Turkish military attack against Kurdish separatists in Iraq has more recently spurred buying as dealers fear a possible disruption to regional oil supplies.

The Turkish cabinet asked parliament on Monday for permission to launch the attack. Iraqi oil exports via Turkey have been sporadic since 2003, although Turkey is also now a major conduit for Caspian oil exports to the Mediterranean.

It's mainly driven by the situation on the Turkey-Iraq border at the moment and the uncertainty that surrounds it, said Tobin Gorey, a commodities strategist at Australia's Commonwealth Bank. The market is paying for that uncertainty now.

Oil's nearly $8 or 10 percent surge in just over a week has also been aided by additional fund buying across the commodities complex, partly as a hedge against a weaker dollar. Gold hit a 28-year high and platinum breached record levels.

Fuelling bullish sentiment, weather forecasters said a low-pressure system emerging from the Yucatan Peninsula in Mexico could develop into a tropical cyclone and threaten the oil infrastructure in the Bay of Campeche, which supplies about two-thirds of the country's output.

Oil prices have more than quadrupled since 2002.

(reporting by Yaw Yan Chong and Maryelle Demongeot)