Oil prices in the United States ended at their highest levels since last September yesterday, despite initial profit-taking from a recent spike fuelled by violence in the Middle East.
International benchmark Brent crude oil ended up 22 cents at $26.60 per barrel, 30 per cent above the start of the year before Israeli forces invaded Palestinian areas of the West Bank.
However US crude oil futures surged 46 cents to $28.45 a barrel as technical levels were triggered in a late wave of buying, which reversed earlier losses of more than 50 cents.
The market is now trading at its highest level since last September, when prices surged to $30 on news of the US World Trade Centre and Pentagon attacks but later collapsed to $20 as traders turned bearish due to the impact on the global economy.
The price recovery follows signals of an economic up-turn in major economies, but has been inflated by an up to $6 per barrel "war premium" that reflects fears that the conflict could choke supplies from Palestinian allies in the Muslim world.
These worries have been partly assuaged in recent days, as Israeli forces withdrew from Bethlehem on Friday and called off a strike in the Gaza Strip planned in response to a Palestinian suicide bombing that killed 15 people last week.
Some dealers took profits earlier in the session on the view that violence in the Middle East now posed less of a threat to supplies, but buyers entered the market in the final hours, spurred in large part to technical signs of a bullish outlook.
The rally in US crude futures has now broken above several crucial resistance levels in the market, leaving very few barriers to a further push higher, traders say.
The Israeli right-wing Likud party's vote against any future establishment of a Palestinian state at the weekend raised fears of further violence. Prices have held up in the face of weak global demand, which is struggling to recover since last year's sharp economic downturn. But the potential for a demand crunch may loom if producers don't lift their supply curbs.
The International Energy Agency, the West's energy watchdog, said in a monthly report yesterday that oil demand in the industrialised world fell sharply in March, while inventories held near the high end of a five-year range.
However, it also said stocks of oil in the West could fall dangerously low over the next six months if producing countries maintain tough curbs on supplies.
"If producers keep output flat, the result is a significant stock drop and we have seen this happen before," said the report's editor Klaus Rehaag.
