LONDON (Reuters) - Brent crude rose towards $111 a barrel on Thursday as Israel’s bombing of the Gaza Strip sparked worries around the supply of oil from the Middle East.
Hamas fired dozens of rockets into southern Israel, killing three, and Israel launched numerous air strikes across the Gaza Strip as the military showdown lurched closer to all-out war.
While events in Gaza themselves do not directly threaten supplies, oil markets are extremely sensitive to violence in the Middle East, which produces a third of the world’s oil. Traders worry that any escalation of the trouble between Israel and the Palestinian territories could draw in Arab producers or affect their supply lines.
Brent crude rose $1.51 to $111.12 a barrel before slipping back to $110.96 at 1425 GMT. U.S. oil was up 30 cents at $86.62, after ending 94 cents up on Wednesday.
“I have a hard time seeing (prices) falling back much at the moment, at least while tension is still high,” said Filip Petersson, an analyst at SEB in Stockholm.
“We would probably need to hear some kind of statements that indicate the Israelis are stepping down, but I think that’s unlikely to happen at the moment.”
Oil edged higher as Egyptian President Mohamed Mursi said Israel’s attacks on the Gaza Strip were “unacceptable” and would lead to instability in the region.
The sudden conflict, launched by Israel with the killing of Hamas’s military chief, will be the biggest test yet of Mursi’s commitment to Egypt’s 1979 peace treaty with Israel, viewed by the West as the bedrock of Middle East peace.
The Muslim Brotherhood, who control Egypt, are seen as the spiritual mentors of Hamas.
A well supplied global oil market, however, has helped to minimize reaction in the oil pits, said Dominick Chirichella of New York’s Energy Management Institute.
“Until there is a clear sign that the instability in the region is spreading toward the oil producing states market participants are likely to approach this situation with caution and not overreact to the upside,” Chirichella said
“That said, as long as the tensions and military activity continues to evolve oil prices should find some price support in the short term,” he said.
Disruption to Norway’s oil production also provided support.
Statoil shut its massive Troll C oil and gas platform in the North Sea due to corrosion in a gas treatment system, reducing Norway’s oil production by around 8 percent, the firm said on Thursday.
Data showing the euro zone had slipped into its second recession since 2009 in the third quarter was one argument for reduce prices on the other side.
Euro zone gross domestic product (GDP) slipped 0.1 percent in the third quarter of 2012 from the previous three months, while growth in Germany, Europe’s largest economy, cooled to 0.2 percent.
Data due later in the day from the federal Energy Information Administration (EIA) on U.S. crude and product stockpiles will provide further direction to prices. (Additional reporting by Manash Goswami in Singapore; editing by Patrick Graham)