Oil up above $40 on Israeli attacks, dollar

London | Updated: Dec 30 2008, 06:37am hrs
Oil prices rose above $40 a barrel on Monday, boosted by the weak dollar and violence between Israel and the Hamas that served as a reminder of tensions that could threaten crude supplies from the Middle East. US light, sweet crude was up $3.08 at $40.79 a barrel by 1143 GMT, below a session high of $42.20. Oil is on track for a nearly 60% loss in 2008-09, the biggest annual fall since futures began trading 25 years ago. London Brent crude rose $3.23 to $41.60 a barrel, after touching a session high of $43.18.

Geopolitics had disappeared from the oil scene for the last couple of months, but will regain some price premium with the latest Israeli attack in Gaza, Olivier Jakob, Petromatrix, a consultancy, said in a research note. Israeli aircraft attacked Hamas targets in Gaza on the third day of an offensive that killed more than 300 Palestinians, many of them who were civilians. The attacks enraged Arabs across the Middle East and highlighted the risk, however remote, that the conflict could threaten oil supplies from the region. Gold rose nearly 3% to its highest since early October on the weak dollar and after the Middle East violence. The dollar was down against the euro.

The level and intensity of violence this time has warranted a fiercer response from the broader Arab world and beyond, said Raja Kiwan of energy consultants PFC Energy. Kiwan, however, said that the large amount of bearish economic news would ultimately overshadow such geopolitical factors. Oil had broken a nine-session losing streak on Friday partly on evidence of Organisation of the Petroleum Exporting Countries (Opec) compliance with its biggest ever production cut. The Abu Dhabi National Oil Co, the UAEs main producer, said that 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 December 17 deal to cut supplies.