Monday, December 29, 2008

Crude Oil Rises as Israeli Attacks on Gaza Roil Middle East

Dec. 29 (Bloomberg) -- Crude oil rose for a second day after Israeli air strikes in the Gaza strip raised concerns that supply from the Middle East, the world’s largest producing region, may be disrupted.

Defense Minister Ehud Barak said Israel is fighting a “war to the death” with Hamas, the group that controls Gaza. Prices also advanced as China, the world’s second-biggest energy consumer, said it will supplement its emergency oil stockpiles while prices are low, and the United Arab Emirates announced compliance with OPEC production cuts agreed on this month.

“The instability in the Middle East may well push oil prices higher,” said Rob Laughlin, a senior broker with MF Global Ltd. in London. “China’s plans to stockpile crude may take up some slack from the demand destruction from the economic slowdown.”

Crude oil for February delivery rose as much as $4.49, or 12 percent, to $42.20 a barrel in electronic trading on the New York Mercantile Exchange. It was at $40.11 at 10:16 a.m. in London. Today’s gain pares oil’s plunge from its $147.27 a barrel record on July 11 to 72 percent.

Futures prices fell 11 percent last week, reaching a four- year low of $32.40 on Dec. 19.

Abu Dhabi National Oil Co., the United Arab Emirates state- owned producer, will reduce crude-oil exports in January and February after OPEC agreed to lower output as of Jan. 1. The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s oil, agreed on Dec. 17 to trim daily production targets by 2.46 million barrels next month.

China’s Stockpiles

Chinese companies will be encouraged to utilize spare oil- storage capacity while state and commercial reserves of other “strategic resources” will be set up, Zhang Guobao, also the vice chairman of the National Development and Reform Commission, wrote in an article in the official People’s Daily today.

Brent crude oil for February settlement climbed as much as $4.81, or 13 percent, to $43.18 a barrel on London’s ICE Futures Europe exchange.

The Israeli air strikes, launched to halt rocket attacks by Islamic militants after a six-month truce with Hamas ended Dec. 19, killed more than 285 people, prompting protests across the region from Saudi Arabia to Syria.

Israeli tanks and armored personnel carriers began taking up positions outside the perimeter fence of the Gaza Strip, Israel Radio said. The army refused to comment on the report.

Oil prices soared to a then-record $78.40 a barrel in July 2006 after Israel attacked Iranian-backed Hezbollah forces in Lebanon. At the time, Iran, the fourth-largest oil producer, was facing international sanctions over its nuclear program, while pipeline attacks had also cut output in Nigeria.

Gold may also benefit if any escalation of the tension in the Middle East drives investors toward a “safe haven,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. Bullion for immediate delivery rose 1.7 percent to $884.42 an ounce, having gained as much as 3.1 percent on Dec. 26.

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