Oil steadies near record levels

Oil prices have steadied after six days of record highs - spurred by supply concerns and tensions between Turkey and Kurdish rebels in northern Iraq.

US light, sweet crude was trading at $87.61 a barrel - down from Tuesday's record of $88.20 - while Brent crude was 40 cents lower at $83.15.

The price surge followed reports that Turkish forces had shelled an Iraqi border village in recent days.

With global supplies tight, any threat to oil output is likely to hit prices.

Economic impact

The Turkish government is preparing a motion seeking parliamentary approval for a military incursion into northern Iraq after 13 Turkish soldiers were killed close to the Iraqi border.

Ankara estimates that 3,500 Kurdistan Workers' Party (KWP) rebels - who want to see the establishment of an independent Kurdish homeland - are based across the border in Iraq.

The market has not been as worried over a geopolitical issue since last July when Israel and Hezbollah guerrillas battled in Lebanon, said Steve Rowles, an analyst with CFC Seymour in Hong Kong.

He predicted that "overall the tensions will eventually subside," saying that Iraq "isn't the oil producer that it once was.".

Oil prices have quadrupled since 2002 due to demand from fast-growing economies such as China and India, allied to instability in oil-producing nations in the Middle East and Africa.

The cost of oil is still below the inflation-adjusted level of about $90 a barrel seen in 1980 when spiralling prices helped contribute to a recession in the US.

Opec output

Analysts are divided over where prices will head next, although most believe the upward pressure on prices - driven by concern about the availability of supplies - is set to continue.

Further pressure on supplies came with news that oil producers outside the Opec cartel were to reduce output by about 110,000 a day.

Last month, Opec said that it would be boosting its production by 500,000 barrels per day from the beginning of next month to cope with resilient global demand for oil.

However, it has since added that demand for oil this winter in the US - the world's largest consumer of heating oil - will be stronger than previously thought.