Oil jumps to near $40 as Israel-Gaza clash widens

[December 29, 2008]  SINGAPORE (AP) -- Oil prices rose to near $40 a barrel Monday in Asia, jumping for a second trading day as a widening conflict between Israel and Gaza raised tensions in the oil-rich Middle East.

Light, sweet crude for February delivery rose $1.99 to $39.70 a barrel in electronic trading on the New York Mercantile Exchange by late afternoon in Singapore. The contract on Friday rose $2.36 to settle at $37.71.

Israel expanded its deadliest-ever air offensive against Gaza's Hamas rulers Sunday and prepared for a possible ground invasion. Arab leaders protested the attacks and Syria broke off indirect peace talks with the Jewish state.

With the two-day death toll nearing 300, Hamas fired rockets deeper than ever into Israel.

"There could be fear that an escalating Middle East conflict could disrupt supplies, though I don't see that happening at this point," said Gerard Rigby, energy analyst with Fuel First Consulting in Sydney. "(Israel-Palestinian conflict) always causes a bit of a blip and is one component that could support prices short-term."

Oil prices have fallen 73 percent since peaking at $147.27 a barrel on July 11 as a credit crisis in the U.S. sparked a steep drop-off in consumer demand and corporate earnings. Analysts expect more dismal economic news from the fourth quarter over the next few weeks.

"More bad profit reports, jobs reports, housing results will put pressure on prices," Rigby said. "Once Obama comes in, that might start changing sentiment and generate more optimism."

Barack Obama is scheduled to be sworn in as U.S. president on Jan. 20.

Trading volumes have been low as many traders take off the week between Christmas and New Year's Day.

In other Nymex trading, gasoline futures rose 3.16 cents to 88 cents a gallon. Heating oil gained 3.30 cents to $1.28 a gallon while natural gas for January delivery jumped 12.4 cents to $5.99 per 1,000 cubic feet.

In London, February Brent crude rose $1.76 to $40.10 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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