Oil slipped below $48 on Tuesday on mild profit-taking, after rising 5% overnight on fears that Israel's deepening incursion into Gaza and a spat between Russia and Ukraine over gas prices could spark severe supply disruptions.
Oil prices have risen nearly 50% since the intraday low of $32.40 reached on December 19, also boosted by mounting evidence of OPEC's compliance with production cuts.
Kuwait will deepen oil supply curbs to its main customers in Asia later this month, refiner sources said on Tuesday, as the Gulf producer joins bigger OPEC peers in cutting back output to put a firmer floor beneath prices.
The measures add to growing evidence that OPEC's biggest members are visibly tightening the taps after the cartel agreed last month to its biggest-ever production cut of 2.2 million bpd.
US crude for February delivery was down 83 cents a barrel at $47.98, after hitting a three-week high of $49.28 on Monday.
London Brent was down 72 cents at $48.90.
“I would expect choppy, sideways trading for oil prices, largely because of the Russian gas row and the Gaza conflict, and until a clearer picture on the economy and supply-side issues emerges,” said Tony Nunan, risk management executive at Tokyo-based Mitsubishi Corp.
Israeli troops backed by air strikes fought to seize ground from Hamas militants deep inside Gaza on Monday, despite international calls for a ceasefire in a conflict that has killed more than 540 Palestinians in 10 days.
While the violence does not directly threaten any oil supplies, the risk is it could engulf other Middle East countries that produce a third of the world's crude.
Adding to geopolitical concerns, Russia reduced gas flows to Europe via Ukraine on Monday, a measure it said was to stop its neighbor siphoning off fuel, but which Kiev said could jeopardize supplies to European countries including Germany.
Countries in southern and eastern Europe reported new falls in gas supplies from Russia as the pricing row with Ukraine escalated, while Serbia and Bulgaria urged industry to scale back demand and switch to alternative fuels, the first sign supply disruptions were hitting customers.
The gas row, which mirrors a similar dispute three years ago that also disrupted supplies, is likely to raise new questions in Europe about Russia's reliability as a gas supplier.
Weekly inventory data from the US Energy Information Administration due on Wednesday are forecast to show that supplies of crude, distillates and gasoline rose last week, which could be a dampener on the market.
“The demand situation still looks bad, because the real economy is getting worse, not better, and I think we could re-test the lows of $32 again when the February contract goes off the board later this month,” said Nunan.
Oil has fallen by more than $100 a barrel from a record peak of over $147 in July, as the global economic downturn hits demand for fuel.
OPEC has cut output three times in a bid to remove about 5% of world supply to halt the slump. (Reuters)