Oct. 18 (Bloomberg) -- Crude oil rose above $89 a barrel in New York for the first time after the U.S. dollar declined to a record low against the euro, enhancing the appeal of commodities as an investment.

Investors purchased oil on speculation the Federal Reserve will cut borrowing costs to bolster the U.S. economy. Oil reached records the past four days on concern Turkey will use military force against Kurdish rebels in northern Iraq, a step that the U.S. says may damage Iraqi security and disrupt oil supplies.

``The further decline of the dollar sent the oil price higher as the day went on,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``There's a round robin of bullish elements at play. The realization that prices will hit $100 a barrel is seeping into the market.''

Crude oil for November delivery rose $2.07, or 2.4 percent, to settle at $89.47 a barrel at 2:51 p.m. on the New York Mercantile Exchange. It was a record close. Futures reached $89.78, the highest price since trading began in 1983. Futures are up 55 percent from a year ago.

On Oct. 15, prices passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.

Brent crude oil for December settlement rose $1.47, or 1.8 percent, to $84.60 a barrel on the London-based ICE Futures Europe exchange. It was a record close. Futures touched $84.80, the highest since trading began in 1988.

Turkish Measure

Turkish legislators passed a measure yesterday that allows Prime Minister Recep Tayyip Erdogan to authorize one or more military assaults within a year. Erdogan is threatening to direct an attack against members of the Kurdistan Workers' Party, or PKK, saying U.S.-led forces failed to control about 3,500 militants sheltered in Iraq's north.

``It doesn't look like anything is imminent but it does make the situation more unstable,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``As we have seen, giving politicians permission to attack normally leads to an attack.''

Iraq holds the world's third-biggest crude-oil reserves, after Saudi Arabia and Iran, according to BP Plc. Iraq's oil-rich northern region is controlled by a semi-autonomous Kurdish administration. Kirkuk, the center of the region, is about 100 miles (161 kilometers) from the Turkish border.

``There are plenty of bullish geopolitical headlines,'' Kilduff said. ``Yesterday we had Bush's World War III comments and the Turkish legislation.''

World War III

President George W. Bush said yesterday a nuclear-armed Iran risks World War III. He added that the U.S. and Russia remain in agreement that Iran shouldn't gain a nuclear weapon. The dispute over Iran's nuclear program has raised the prospect of a decline in shipments from the country, the fourth-biggest oil exporter.

``Most commodities are priced in the U.S. dollar, so the drop on the dollar has an immediate effect,'' Beutel said. ``The price in dollars needs to go higher to reflect the true value of the commodities.''

A lower dollar makes oil relatively cheaper in the countries using other currencies. In U.S. dollars, West Texas Intermediate, the New York-traded crude-oil benchmark, is up 46 percent so far this year. Oil is up 35 percent in euros, 40 percent in British pounds and 42 percent in yen.

Members of the Organization of Petroleum Exporting Countries have said a falling dollar justified higher prices because oil- producing countries sell oil in dollars and often buy goods in euros. Algerian Oil Minister Chakib Khelil said on Oct. 15 that the increase in crude oil prices is helping Algeria recoup losses from the falling value of the U.S. currency.

Higher Output

OPEC agreed last month to produce an extra 500,000 barrels a day starting Nov. 1 to meet rising demand. World oil consumption peaks in the fourth quarter when refiners make heating fuel for the Northern Hemisphere winter.

``What they did a month ago is too little, too late,'' former Saudi Arabian oil minister Sheikh Ahmad Zaki Yamani said at a London conference organized by the Centre for Global Energy Studies, which he chairs. More OPEC oil is needed ``to reduce tension in the market as we approach winter.''

The profit margin, or crack spread, for turning crude oil into fuels fell 14 percent to $4.4702 a barrel today, the lowest since Sept. 20, 2006, based on closing futures prices in New York. It rose to $30.479 on May 17, the highest since at least 1989.

Heating oil for November delivery rose 3.04 cents, or 1.3 percent, to $2.3493 a gallon in New York, a record close. Futures touched $2.3609, the highest intraday price since trading began in 1978.

Gasoline for November delivery increased 3.85 cents, or 1.8 percent, to $2.1851 a gallon, the highest close since July 19.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: October 18, 2007 17:31 EDT