Oil prices rose nearly 2 percent on Monday after an Iranian military commander reportedly called for an oil boycott over Israel's offensive in the Gaza Strip, and on concerns over the deepening Russian gas supply row.
Wall Street's strong start to the new year on Friday, mounting evidence of OPEC's compliance with deep production cuts and the U.S. Energy Department's decision to start rebuilding its emergency crude reserves have also helped oil to a third day of strong gains.
U.S. crude for February delivery was up 86 cents a barrel at $47.20 by 0255 GMT, but off an earlier high of $48.68.
London Brent was up 61 cents to $47.52.
"The market is pausing for breath after big gains over the past week -- there's some mild profit-taking after the surge this morning," said ANZ Bank senior commodity strategist Mark Pervan.
Israeli troops and tanks split the Gaza Strip and ringed its main city on Sunday in an offensive against Hamas that has killed 500 Palestinians, including a growing number of civilians.
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, with No. 4 oil producer and OPEC member Iran typically the most vocal.
An Iranian military commander has called on Islamic countries to cut oil exports to Israel's supporters in response to the offensive in Gaza, the official IRNA news agency reported on Sunday.
"The Gaza conflict added to the geo-political risk premium... in the oil price," Commonwealth Bank of Australia analyst David Moore said in a note.
On the demand side, the U.S. Energy Department is looking to buy about 12 million barrels of oil for the Strategic Petroleum Reserve in the first four months of the year, to replace supplies sold following hurricanes Katrina and Rita in 2005. It would further boost the reserve through 2009.
The announcement comes after China, the world's second-largest oil user after the U.S., said earlier last week it would take advantage of lower crude prices to boost imports and build up reserves.
Weekly inventory data from the U.S. Energy Information Administration (EIA) on Wednesday could reflect lower crude stocks after heavy fog closed several ports along the U.S. Gulf Coast.
"The weekly inventory data from the U.S. Department of Energy out later this week will be key -- there's potential for that to be price supportive," Pervan said.
Adding to geopolitical concerns, Russian natural gas supplies fell by five percent to the Czech Republic as a result of Russia's stand-off with Ukraine over gas prices, which began on New Year's day. The two sides blame each other for the dispute.
European energy firms, which received about a fifth of their gas via pipelines through Ukraine, said they had enough gas stockpiled to maintain supplies for several days, but analysts said Europe could face problems if the row dragged on.
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.
The market will also be looking for further signs of OPEC production cuts, after Libya and Abu Dhabi's National Oil Co both joined leading producer Saudi Arabia, vowing to cut output by January as OPEC vows to stem the 54 percent fall in oil prices in 2008.
