FX:Crude oil rallies to 2-week high on Middle East supply fears
Forexpros - Crude oil futures were up for a second day on Monday, rallying to a two-week high as escalating violence between Israel and Hamas militants in Gaza underlined concerns about a wider conflict that could disrupt supplies from the region.
Prices find additional support amid hopes U.S. lawmakers will reach a compromise to avert the looming fiscal crisis.
On the New York Mercantile Exchange, light sweet crude futures for delivery in January traded at USD87.75 a barrel during European morning trade, up 0.95% on the day.
New York-traded oil prices rose by as much as 1.1% earlier in the day to hit a session high of USD87.94 a barrel, the strongest level since November 7.
Oil’s gains came as the conflict between the Israelis and Palestinians escalated over the weekend, with both sides stepping up attacks in and around the Gaza Strip.
Hamas fired missiles at Tel Aviv on Sunday, while Israel extended its bombing of Gaza.
Oil traders were concerned that neighboring Muslim countries, specifically Iran, could be drawn into the conflict, which could impact oil exports from the region.
Countries in the Middle East and North Africa were responsible for 36% of global oil production and held 52% of proved reserves in 2011.
Meanwhile, investors continued to monitor developments surrounding the looming “fiscal cliff” in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1.
Sentiment was bolstered after U.S. Congressional leaders said talks with President Barack Obama on Friday to avert the fiscal crisis were "constructive."
There are fears the U.S. economy will fall back into a recession, unless a divided Congress and the White House can work out a compromise in the seven weeks left before the January 1 deadline.
Weakness in the U.S. dollar also contributed to gains. The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.15% to trade at 81.14.
Dollar-denominated oil futures contracts tend to rise when the dollar falls, as this makes oil cheaper for buyers in other currencies.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for January delivery added 0.75% to trade at USD109.75 a barrel, with the spread between the Brent and crude contracts standing at USD22.00 a barrel.
