SINGAPORE - A 6 percent jump in oil prices on Monday after one of the worst days of Israeli-Palestinian violence in decades underscored the market's sensitivity to conflict in a region that produces a third of global crude, but traders saw little to suggest any real impact on supplies.
Oil traders were startled by the eruption of fighting over the weekend, as Israeli warplanes pounded the Gaza Strip in response to intensifying rocket and mortar fire from the Islamist Hamas group, which ended a six-month ceasefire a week ago.
Israel prepared for a possible invasion after killing 307 Palestinians in three days of air raids, with Saturday's attacks among the bloodiest days in 60 years of conflict.
For the moment, there seemed little risk of the violence engulfing the region's big oil suppliers, or even provoking more saber-rattling support beyond Iran, which was quick to call for a sterner response from Arab governments.
For some, it seemed similar to the war in Lebanon in the summer of 2006, which caused a brief spike in oil prices but ended a month later without disrupting a drop of crude.
"The only danger regarding energy production is the conflict escalating to involve neighboring countries, which does not look likely at this juncture," said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a U.S.-based options house.
"The reaction from traders is one of locking in gains from short positions during a week of very thin trading. The current situation does not dictate a continued rise in prices."
U.S. light, sweet crude surged earlier by more than $2, but gains seeped away by midday, leaving oil up 91 cents or 2.4 percent at $38.62 a barrel by 0616 GMT. Prices had jumped on Friday on signs last week that some of OPEC's top producers were implementing the group's biggest-ever output cut.
Gold prices rose nearly 2 percent as well on the back of the conflict and behind oil's gains.
IRAN STEPS UP RHETORIC
The offensive enraged Arabs across the Middle East, but provoked measured responses from the region's major producers.
"We hope there will be reasonable voices from the international community to pressure Israel to stop its brutal aggression," said Sheikh Abdullah bin Zayed al-Nahayan, foreign minister of the UAE, the world's sixth-largest producer.
However, the Supreme Leader of OPEC-member Iran -- which has occasionally alluded to the possibility of cutting off oil supplies in its dispute with the West over its nuclear program -- issued a religious decree ordering Muslims around the world to defend Palestinians in Gaza against Israeli attacks.
Ayatollah Ali Khamenei, Iran's most powerful authority, also criticized some Arab governments for their lack of response and urged Muslim countries to punish Israeli leaders, comments that could be seen as a prelude to calling for action on oil supplies.
"The even greater catastrophe is the encouraging silence of some Arab governments who claim to be Islamic," he said.
But analysts pointed out that the collapse in oil prices means Tehran can ill afford to further risk revenues.
"Iran, who is believed to hold sway over Hamas, isn't in the best of economic shape due to low oil prices," said Dubai-based Standard Chartered analyst Serene Gardiner.
While this week's violence was unprecedented in a generation, it remained a very far cry from anything like the broader regional conflict that triggered the 1973 Arab oil embargo, which cut exports by a quarter and caused oil prices to triple.
Monday's knee-jerk response, likely exaggerated by thin holiday trading conditions, seemed most reminiscent of mid-July 2006, when the start of a month of fierce violence between Israel and Hezbollah in Lebanon drove oil to a then record high above $78 a barrel, and kept it on the boil until mid-August.
Israeli officials have also likened the aerial onslaught to the opening strategy of the 2006 Lebanese war.
Within two months, after the immediate risk faded with no indication of any impact on supply, oil had collapsed below $60.
Oil prices may have even less reason to react this time. Two and a half years ago, oil exporters were struggling to meet quickly rising demand and held a very thin reserve of production to make up for any short-term loss of supplies.
Now, OPEC is cutting output at a record rate to keep up with falling demand, giving the group a more substantial cushion should supplies from any one member be affected.
Still, some analysts were hedging their bets.
"Where (the conflict) is going, nobody knows. Who can speculate on war?" said Peter McGuire, managing director at Commodity Warrants Australia.
Oil traders were startled by the eruption of fighting over the weekend, as Israeli warplanes pounded the Gaza Strip in response to intensifying rocket and mortar fire from the Islamist Hamas group, which ended a six-month ceasefire a week ago.
Israel prepared for a possible invasion after killing 307 Palestinians in three days of air raids, with Saturday's attacks among the bloodiest days in 60 years of conflict.
For the moment, there seemed little risk of the violence engulfing the region's big oil suppliers, or even provoking more saber-rattling support beyond Iran, which was quick to call for a sterner response from Arab governments.
For some, it seemed similar to the war in Lebanon in the summer of 2006, which caused a brief spike in oil prices but ended a month later without disrupting a drop of crude.
"The only danger regarding energy production is the conflict escalating to involve neighboring countries, which does not look likely at this juncture," said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a U.S.-based options house.
"The reaction from traders is one of locking in gains from short positions during a week of very thin trading. The current situation does not dictate a continued rise in prices."
U.S. light, sweet crude surged earlier by more than $2, but gains seeped away by midday, leaving oil up 91 cents or 2.4 percent at $38.62 a barrel by 0616 GMT. Prices had jumped on Friday on signs last week that some of OPEC's top producers were implementing the group's biggest-ever output cut.
Gold prices rose nearly 2 percent as well on the back of the conflict and behind oil's gains.
IRAN STEPS UP RHETORIC
The offensive enraged Arabs across the Middle East, but provoked measured responses from the region's major producers.
"We hope there will be reasonable voices from the international community to pressure Israel to stop its brutal aggression," said Sheikh Abdullah bin Zayed al-Nahayan, foreign minister of the UAE, the world's sixth-largest producer.
However, the Supreme Leader of OPEC-member Iran -- which has occasionally alluded to the possibility of cutting off oil supplies in its dispute with the West over its nuclear program -- issued a religious decree ordering Muslims around the world to defend Palestinians in Gaza against Israeli attacks.
Ayatollah Ali Khamenei, Iran's most powerful authority, also criticized some Arab governments for their lack of response and urged Muslim countries to punish Israeli leaders, comments that could be seen as a prelude to calling for action on oil supplies.
"The even greater catastrophe is the encouraging silence of some Arab governments who claim to be Islamic," he said.
But analysts pointed out that the collapse in oil prices means Tehran can ill afford to further risk revenues.
"Iran, who is believed to hold sway over Hamas, isn't in the best of economic shape due to low oil prices," said Dubai-based Standard Chartered analyst Serene Gardiner.
While this week's violence was unprecedented in a generation, it remained a very far cry from anything like the broader regional conflict that triggered the 1973 Arab oil embargo, which cut exports by a quarter and caused oil prices to triple.
Monday's knee-jerk response, likely exaggerated by thin holiday trading conditions, seemed most reminiscent of mid-July 2006, when the start of a month of fierce violence between Israel and Hezbollah in Lebanon drove oil to a then record high above $78 a barrel, and kept it on the boil until mid-August.
Israeli officials have also likened the aerial onslaught to the opening strategy of the 2006 Lebanese war.
Within two months, after the immediate risk faded with no indication of any impact on supply, oil had collapsed below $60.
Oil prices may have even less reason to react this time. Two and a half years ago, oil exporters were struggling to meet quickly rising demand and held a very thin reserve of production to make up for any short-term loss of supplies.
Now, OPEC is cutting output at a record rate to keep up with falling demand, giving the group a more substantial cushion should supplies from any one member be affected.
Still, some analysts were hedging their bets.
"Where (the conflict) is going, nobody knows. Who can speculate on war?" said Peter McGuire, managing director at Commodity Warrants Australia.
