Oil prices touched a new peak of $89 a barrel on Wednesday as investors fretted over possible military action by Turkey in northern Iraq and a potential supply crunch this winter.
The rally renewed worries that soaring energy costs could damage world economic growth and prompted producer group OPEC to consider calling a formal meeting November 17 on output policy during a heads of state conference in Saudi Arabia, earlier than expected.
There will be a meeting of ministers, initially informally, but there may be a formal meeting. We are still a month away and it depends what transpires before then, Nigerian Minister of State for Petroleum Odein Ajumogobia told Reuters.
U.S. crude entered a seventh day of gains, soaring $1.39 to trade at $89 before pulling back to $88.24 by 1:30 p.m. EDT (1730 GMT) -- a 63 cent rise. London Brent crude rose 25 cents to $83.80.
Turkey's parliament Wednesday granted its troops permission to launch an attack against Kurdish rebels inside Iraqi territory, despite international pressure to hold off on a strike.
The tensions are seen as dimming hopes for a recovery in Iraqi oil exports via Turkey, which have been sporadic since 2003. But traders say the greater fear is the risk of further unsettling the Middle East region, which pumps a third of the world's oil.
Surging oil prices, also driven by an inflow of investor money, have approached their $90.46 inflation-adjusted peak of 1980. Experts fear damage to the U.S. economy already coping with fallout from the subprime loan crisis.
Given the long-term risks of security-related disruptions to the global oil market, it would be very wrong to write off oil-induced recessions as a thing of the past, said Gilles Moec, an economist at Bank of America.
U.S. petroleum consumption already has showed signs of slowing, with demand growth running just 0.2 percent over last year, according to the latest government data. Experts said the slowdown is being offset by continued strong growth in demand from China and other developing economies.
The impact of the geopolitical risk was magnified by concerns that OPEC's 500,000 barrels per day (bpd) output rise may be too little too late to maintain healthy supplies through the winter, with refiners revving up to meet peak demand.
Saudi Arabia, OPEC's top producer, is set to boost output close to 9 million bpd in November under the group's agreement.
The White House said on Tuesday that oil prices were too high and the U.S. Energy Information Administration (EIA) said the market needed additional OPEC oil.
Tempering oil's rally Wednesday, U.S. crude stocks and refined fuel stockpiles rose more than expected last week, according to a government report.
(Additional reporting by Janet McBride in London)