Oil prices rose nearly 3 per cent today after an Iranian military commander reportedly called for an oil boycott over Israel's offensive in the Gaza Strip, and on worries over the deepening Russian gas supply row.
A strong start to the new year for stock markets, mounting evidence of OPEC's compliance with production cuts, and the U.S. Energy Department's decision to start rebuilding its crude reserves have also helped oil to a third day of strong gains.
US crude for February delivery was up $1.18 a barrel at $47.52 by 7.30am, but off an earlier high of $48.68. London Brent was up 83 cents to $47.74.
"The market is pausing for breath after big gains over the past week - there's some mild profit-taking after the surge this morning," said ANZ Bank senior commodity strategist Mark Pervan.
Israeli forces on Monday pressed on with a deadly ground, sea and air assault against Hamas militants in the Gaza Strip that has cut the territory in two, while France spearheaded diplomatic efforts to obtain a truce.
While the violence does not directly threaten any oil supplies, the risk is it could engulf other Middle East countries that produce a third of the world's crude, with th fourth largest oil producer and OPEC member Iran typically the most vocal.
An Iranian military commander has called on Islamic countries to cut oil exports to Israel's supporters in response to the offensive in Gaza, the official IRNA news agency reported last night.
"The danger to energy prices largely comes from the possibility of Iran getting more involved in the clash, most likely through heightened anti-US and -Israel rhetoric," Jonathan Kornafel, the director of Hudson Capital Energy Asia, wrote in a note.
On the demand side, the US Energy Department is looking to buy about 12 million barrels of oil for the Strategic Petroleum Reserve in the first four months of the year, to replace supplies sold following hurricanes Katrina and Rita in 2005. It would further boost the reserve through 2009.
The announcement comes after China, the world's second-largest oil user after the US, said earlier last week it would take advantage of lower crude prices to boost imports and build up reserves.
Weekly inventory data from the US Energy Information Administration (EIA) on Wednesday could reflect lower crude stocks after heavy fog closed several ports along the US Gulf Coast.
Reuters