Oil prices rose as much as 5.6% to nearly $40 a barrel on Monday after weekend violence between Israel and Hamas, reminding traders of the geopolitical risk to crude supplies from the Middle East.
Oil gained for a second day after Friday’s surge on the back of growing signs of OPEC compliance with its biggest ever production cut. However fears of a deepening global recession continue to stymie any major rebound from the over $100 a barrel slump since July’s record high above $147.
By 5:53 a.m. British time, US light, sweet crude was up 90 cents at $38.61 a barrel, paring gains after rising more than $2 to $39.82. Oil is on track for a nearly 60% loss this year, the biggest annual fall since futures began trading 25 years ago. London Brent crude rose $1.10 to $39.47 a barrel.
“Some news around Israel and Gaza is pushing the market higher,” said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo. Israel pounded Hamas targets in the Gaza Strip from the air for the third consecutive day on Monday and prepared for a possible invasion after killing at least 307 Palestinians.
“It’s a terrible situation and it just seems to be again causing major concerns for all the markets,” said Peter McGuire, managing director at Commodity Warrants Australia. “But where it’s going, nobody knows. Who can speculate on war?” McGuire said.
The attacks enraged Arabs across the Middle East raising the risk, however remote, that the conflict could engulf major oil exporters and endanger real supplies. “We’ve seen this kind of case quite often so I think the upside (for oil prices) will be limited. I don’t think it is so serious at the moment,” said Hasegawa.
Gold rose more than 2% to its strongest since early October on Monday. Oil jumped nearly 7% on Friday, breaking a nine-day losing streak, after the Abu Dhabi National Oil Co, the UAE’s main producer, said it would cut January and February oil exports by much more than some refiners had expected.
The allocations were some of the first hard evidence that Gulf exporters were implementing the Organization of the Petroleum Exporting Countries’ December 17 deal to cut supplies by 2.2 million barrels per day. Top exporter Saudi Arabia informed its customers of cuts even before the meeting.
OPEC has now cut output three times in an effort to remove about 5% of world supply to halt the slump. OPEC President Chakib Khelil said on Saturday he expected oil prices to stabilize within the next two months after the output cuts.
While OPEC battles a downturn in global demand, China’s energy chief said the world’s second-largest oil user after the United States would take advantage of falling oil prices to boost imports and build up its fledgling oil reserves. (Reuters)