Oil Prices Approach $88

Updated from 8:09 a.m. EDT

Oil futures surged to yet another all-time high Tuesday as traders worried that fighting will break out between Turkey and Kurdish rebels in northern Iraq, destabilizing the political situation in the Middle East and potentially disrupting some petroleum shipments.

Light, sweet crude for November delivery jumped another $1.48 to $87.61 a barrel in New York trading and has now climbed nearly $4 in the past two sessions. Earlier, the near-term oil contract reached $88.20, a level never before seen.

Aside from the tension between Turkey and the Kurds, speculative buying and expectations of tight supplies have also factored into oil's recent run-up.

The U.S. is in a difficult spot with Turkey and the Kurds because both have been allies in the war in Iraq. The sides have engaged in limited fighting off and on for years, but should a war erupt between them, the Bush administration would likely have to move quickly on the diplomatic front to attempt to quiet the hostilities.

Most other energy contracts were higher, as well. Reformulated gasoline rose almost 2 cents to $2.17 a gallon, and heating oil was up 3 cents at $2.34 a gallon. Natural gas slipped 8 cents to $7.37 per million British thermal units.