MW: Oil futures rally as Israeli air raids in Gaza continue
Crude-oil futures rallied Monday, as Israeli air strikes in the Gaza Strip escalated worries about a possible disruption to energy supplies from the Middle East.
In thin trading, light, sweet crude for February delivery rose $2.31, or 6%, to end at $40.02 a barrel on the New York Mercantile Exchange.
Earlier, the contract had soared to an intraday high of $42.20 a barrel in electronic trading on Globex.
"The strikes by Israel have heightened tensions in the region, increasing the geopolitical risk premium in the price on fears that there could be some disruption to crude supplies from the Middle East," said Michael Davies, an analyst at Sucden Financial Research, in a note.
"However, the risk of any significant disruption remains low and the move seems a little overdone and can possibly be explained by the thin market conditions over the holiday period," Davies said.
On Friday, oil futures ended up $2.36, or 6.7%, at $37.71 a barrel on the New York Mercantile Exchange. Despite the gain, oil finished the week down 11%.
Oil futures have tumbled nearly 60% this year.
In the Gaza Strip, Israeli air strikes aimed at targets linked to militant group Hamas continued for a third day, the BBC reported on Monday. See full story.
Hamas said 300 Palestinians have died since Saturday, while the United Nations said that 56 civilians are dead, according to the report. In Israel, a second person was killed by a militant rocket, the report said.
Israeli Defense Minister Ehud Barak said Israel was not fighting the people of Gaza but was in "a war to the bitter end" with Hamas, the BBC reported.
"Military action by Israel is always a grave concern because of the uncertainty of where it might lead," said Michael Fitzpatrick, an analyst at MF Global, in a research note. "The region has been, and remains, a tinderbox and so it has the ability to erupt into a conflagration that could involve oil supplies."
While oil prices remain sensitive to geopolitical developments, particularly those from the Middle East, "the declining dollar, low volume and the return of bargain-hunting Europeans are probably more to blame" for the rise in oil prices, Fitzpatrick said.
In the currency markets, the U.S. dollar traded mostly lower against its major counterparts Monday. The euro gained 0.5% to $1.4091, while the dollar fell 0.6% against the Japanese yen to 90.22 yen. The British pound edged down 0.2% against the greenback.
The dollar index , which measures the greenback against a basket of six major counterparts, stood at 80.61 Monday compared with 80.91 in late North American trading on Friday. Dollar weakness typically boosts dollar-denominated commodities such as gold and oil. See Currencies.
Also on Nymex Monday, reformulated gasoline for February delivery rose 4 cents to end at 92 cents a gallon and February heating oil added 5 cents to $1.27 a gallon.
February natural gas futures rose 27 cents, or 5%, to $6.08 per million British thermal units.
Elsewhere in the commodity markets, gold futures ended with modest gains after surging to their highest level since early October on safe-haven buying.
