LONDON – Oil prices neared $50 a barrel Tuesday amid signs OPEC is implementing its announced production cuts and as Israel's ground offensive in Gaza kept tensions high in the oil-rich Middle East. The gas dispute between Ukraine and Russia also caused gas prices to jump.
Light, sweet crude for February delivery rose $1.07 to $49.88 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Europe. The contract rose overnight $2.47 to settle at $48.81.
Israeli forces edged closer to Gaza's major population centers and attacked new sites in the eleventh day of fighting with Hamas. The offensive has killed at least 500 people, about 25 percent of whom were civilians, a U.N. official said Monday.
The U.N. Security Council met with Arab delegates in New York Monday, urging members to adopt a resolution calling for an immediate end to the Israeli attacks and a permanent cease-fire. At the same time, diplomats and European leaders traveled the region in an effort to stop Israel's expanding ground and air offensive.
An Iranian Revolutionary Guard commander has urged Islamic nations to use crude oil as a weapon to exert pressure on Western backers of Israel. However, key Persian Gulf producers like Saudi Arabia have so far not backed any measure to target specific consuming countries.
"Whenever Hamas and the Israelis are fighting, there's always a risk of things escalating," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "Oil is sensitive to political issues, and the price could overshoot until we know if this conflict could affect supplies."
Analyst Olivier Jakob of energy analysis firm Petromatrix in Switzerland said the conflict in Gaza is "no threat to the prompt and direct supply of oil." But he added: "As the humanitarian disaster continues to intensify it could turn to have an indirect impact on oil supplies, as it will become more and more difficult for Arab leaders to explain to their street that they need to keep low oil prices to support the Western consumers while the Western powers will not help in supporting their call for a cease-fire."
Oil prices have been bolstered by signs the Organization of Petroleum Exporting Countries is implementing production cuts of 4 million barrels a day that the group has announced since October, Moltke-Leth said.
"It's likely they are going to stick to the output cuts they've promised," Moltke-Leth said. "That will likely support oil in the short term, and we could test $55 this month."
Oil prices have risen over 40 percent since reaching a five-year low of $33.87 a barrel on Dec. 19 despite signs that a severe global economic slowdown is worsening.
"We know the data coming out in January is going to be really bad," Moltke-Leth said. "But the market has discounted that into expectations."
In other Nymex trading, gasoline futures fell 3.38 cents to $1.22 a gallon. Heating oil slid 6.53 cents to $1.64 a gallon while natural gas for February delivery jumped 11.4 cents to $6.19 per 1,000 cubic feet.
In London, February Brent crude fell $2.12 to $51.74 a barrel on the ICE Futures exchange.