SYDNEY, Oct 29 (Reuters) Oil leapt to a record high for a third day on Monday, surpassing as Mexico briefly halted one-fifth of its production and the U.S. dollar struck new lows.
U.S. light crude for December delivery which hit a high of .20 a barrel earlier, was up 85 cents at .71 by 0735 GMT.
London Brent crude which hit a record high , was up 98 cents at .67.
Oil prices have soared by more than a third since mid-August as a stand-off between Turkey and Kurdish rebels, dollar weakness, easing interest rates and winter supply fears attracted a fresh wave of investment capital.
Prices rose on Monday after Mexico's state-owned oil company Pemex said it was shutting about 600,000 barrels per day (bpd) of oil output due to bad weather in the Gulf of Mexico and high terminal stocks, fanning concerns of a U.S.
A spokesman said Pemex should be able to resume output ''immediately'' once the cold weather passed in two days. The country's three main export terminals were shut on Sunday.
The precautionary closure came days after a storm killed at least 21 oil workers, provoking a flurry of criticism against Pemex for its safety standards.
Gains accelerated mid-day amid unusually heavy trade of 16,000 lots on the U.S. front-month contract on Monday, with some traders pointing to short-covering by options players or technical stop levels around the a barrel mark.
POLITICAL TENSIONS After easing early last week, oil prices resumed their march toward the 0 mark after data showed a sharp drop in U.S. crude stocks, the U.S. dollar plumbed new lows and tension mounted between Turkey and Kurds in northern Iraq.
''There remain concerns that oil market conditions are tightening and geopolitical tensions are also continuing to add a premium to oil prices,'' said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
The dollar hit another record low against a basket of currencies on Monday on expectations that the Federal Reserve will trim interest rates this week and possibly again this year.
Turkey's foreign minister Ali Babacan, speaking on Sunday after talks aimed at averting a Turkish incursion into Iraq, said diplomatic and military operations could both be used in the country's fight against Kurdish guerrillas.
Turkish troops killed 20 Kurdish guerrillas on Sunday in a major operation against separatist rebels in eastern Turkey, army sources said.
The attacks have sparked worries of supply disruptions from northern Iraq and heightened fears of wider regional fallout if Turkey follows through with threats to launch attacks inside northern Iraq if necessary.
The abduction of foreign oil workers in Nigeria on Friday that forced ENI unit Saipem and SBM Offshore to cut production by 50,000 barrels per day (bpd) also reignited fears of tighter winter supplies.
Attacks by militant group Movement for the Emancipation of the Niger Delta (MEND) had already cut Nigerian output by a fifth since early last year and forced thousands of foreigners to flee the vast wetlands region in southern Nigeria.
Despite the surge in oil prices, OPEC has shrugged off calls from importer nations to raise output, saying politics and speculation -- not a supply shortfall -- are to blame.
Iran's oil minister said on Saturday that world oil markets were well supplied, with petroleum inventories above average, reiterating suggestions earlier this week that the Organization of the Petroleum Exporting Countries (OPEC) is not likely to raise output to calm markets.
U.S. Vice President Dick Cheney also ruled out tapping the nation's oil reserve to rein in prices.
REUTERS KR DS1417