Nov. 1 (Bloomberg) -- Oil traders increased bets that December futures will reach $125 a barrel because of possible disruptions to Middle East supplies and rising demand.

Traders held call options to buy 2,526 contracts, each representing the right to buy 1,000 barrels, of December oil at $125 in New York as of Oct. 29, from 1 lot on June 29, New York Mercantile Exchange data show. Bets on $100 oil are also surging: Traders held options to buy 49.7 million barrels of December oil at that price on Oct. 30, up from 30 million barrels on Jan. 2.

Crude oil for December delivery rose to a record $96.24 a barrel in New York today, the highest since the futures began trading in 1983. Prices have soared 19 percent the past month as demand pared inventories, a weaker dollar spurred investors to switch into commodities, and political tension in Iran and Iraq attracted speculative buying.

``A few years ago, when triple-digit oil was talked about, it was tempered by negative responses,'' said Anthony Nunan, deputy general manager of risk management at Mitsubishi Corp. in Tokyo. ``Slowly, it's becoming a reality. It's not crazy anymore, it's a reasonable target.''

Crude oil for December delivery gained as much as 1.8 percent and traded 1.1 percent higher at $95.52 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 3:10 p.m. Singapore time.

Oil rebounded above $90 after the Federal Reserve cut its benchmark interest rate for a second time in two months, prompting a drop in the dollar to a record-low against the euro.

December Options

Purchases of options to buy December oil at $125 a barrel have risen 46 percent in the week ended Oct. 30, Nymex data shows. Purchases of options to buy oil for $100 a barrel rose to a record 15,709 thousand-barrel lots on Oct. 26, from 81 contracts a month ago. Options give buyers the right to buy or sell a security by a fixed date at a specific price.

Oil prices have risen more than fourfold since 2002 as political instability disrupted supplies from producers including Iraq, Nigeria and Venezuela, while hurricanes in the U.S. damaged oil platforms and refineries.

``When it gets this high, it becomes uncertain and everyone gets scared,'' Mitsubishi's Nunan said. ``Since $100 a barrel is a reality, $125 or $130 is also possible.''

Tensions between Turkey and Iraq over Kurdish militants as well as over Iran's nuclear program have also helped drive oil prices higher.

The ``Turkish-Iraq situation presents an upside risk'' for oil prices, Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd., said in Hong Kong. ``The momentum is strong, and with a lot of physical risks and the supply disruption, we could move higher.''

To contact the reporters on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net; Wai Meng Lee in Singapore at wlee17@bloomberg.net

Last Updated: November 1, 2007 03:19 EDT