MW: Middle East woes, U.S. debt talks lift oil prices
By Myra P. Saefong and Kristene Quan, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures rallied Monday, as Middle East tensions stirred supply concerns and as traders weighed signs of progress in Washington toward a potential deal to avert the so-called fiscal cliff.
Crude for January delivery CLF3 +2.35% traded at $89.14 a barrel on the New York Mercantile Exchange, trading $2.23, or 2.6%, higher.
The advance followed a 1.2% climb in the January contract on Friday. The now-expired December contract ended Friday with a 1.4% gain. See: Oil rallies Friday, ends above $86 to score weekly gain
An escalation in Middle East tensions lifted oil prices on Monday, as airstrikes by Israel in retaliation for rocket attacks by Palestinians in the Gaza Strip fueled supply concerns in the region.
“Middle East uncertainty, even when the countries involved do not produce much oil, lends support to oil prices,” said James Williams, an energy economist at WTRG Economics, in a recent report.
Prime Minister Benjamin Netanyahu said Sunday that “we have exacted a heavy price from Hamas and other terrorist organizations” but that the Israeli army is prepared to significantly expand its offensive into Gaza. See: Israel ready to expand Gaza strikes: Netanyahu
“Fears are growing that Arab oil producers could find themselves dragged into the conflict between Israel and the Palestinians,” analysts at Commerzbank said in a note.
“A suggestion from Iraq that oil shipments could be used as a weapon had been denied shortly afterwards — nonetheless, it serves to illustrate the risks that the conflict could entail. We therefore assume that prices will continue to rise,” they said.
The rally in oil prices was further inspired by a broad risk-on mood across global financial markets, following signs that U.S. congressional leaders are making progress in striking a deal to avert the fiscal cliff — billions in automatic tax hikes and across-the-board spending cuts that would exact a toll on the largest global economy. See: Obama and Pelosi hopeful on budget deal.
European Union policy makers are “striving to reach yet another temporary accord over the euro zone’s debt crisis and [U.S. President Barack] Obama is on a whirlwind tour of Asia seeking to assuage leadership there that the U.S. ‘fiscal cliff’ will be averted,” said Michael Fitzpatrick, editor in chief of the Kilduff Report.
“So the week begins with a ray of hope on the economic front, and heightened geopolitical worries which are combining to push prices higher,” he said.
Data Monday also showed that sales of existing homes rose 2.1% in October to a seasonally adjusted annual rate of 4.79 million, from a downwardly revised rate of 4.69 million in September. See: Sales of existing homes rise 2.1% in October.
Seasonal influences, as well as reduced volumes associated with Thursday’s Thanksgiving holiday are also in play in the oil markets, said Kilduff.
“The elements are in place to keep prices elevated at least until next week,” he said. “However, when headlines drive prices, surprises usually unleash an out-sized response in financial markets, so be extremely cautious.”
For now, a weaker dollar further stirred buying appetite for oil futures and other dollar-denominated commodities, which tend to move inversely to the greenback.
The ICE dollar index DXY -0.43% , which measures the greenback against a basket of six other major currencies, fell back to 80.887, from 81.286 in late North American trade Friday, the highest level since early September.
Among other energy futures Monday, heating oil for December delivery HOZ2 +2.50% rose 8 cents, or 2.7%, to $3.07 a gallon as December gasoline RBZ2 +1.56% added 5 cents, or 1.9%, to $2.76 a gallon.
December natural gas NGZ12 -0.26% shed 1 cent, or 0.2%, to $3.78 per million British thermal units.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Kristene Quan is a MarketWatch reporter, based in Hong Kong. Sara Sjolin in London contributed to this report.
