Oil prices stay up on regional tensions

Oil prices fluctuate around US$47 as Israel's incursion into Gaza and the Russian gas dispute heighten supply fears.

LONDON // Oil prices fluctuated around US$47 a barrel on Monday after hitting a three-week high early in the session, as Israel's deepening incursion into Gaza and the Russian gas dispute heightened geopolitical supply fears. However, prices swung in and out of positive territory as a rally in the US dollar encouraged profit-taking by investors, with oil prices up by more than 30 per cent since the end of last month. US crude for February delivery hit an early high of $48.68 a barrel, the highest since Dec 15. Prices were up $1.05 at $47.39 a barrel by mid-afternoon trading. London Brent was up 79 cents at $47.70 a barrel. Oil prices have risen sharply from about $35 a barrel since Israel launched its Gaza offensive on Dec 27, heightening fears for crude supplies from the Middle East. An Iranian military commander called for Islamic producers to cut supplies to Israel's supporters in Europe and the US, the official IRNA news agency reported on Sunday. However, an Opec source said the Iranian comments would not sway other members. "There are no plans to do this and I think it is very unlikely." Analysts said heightened tensions in the Middle East - which provides one third of the world's crude - would remain supportive of oil prices. "Sabre rattling by Iran and further instability in the Middle East always produces fears for oil supplies, which is putting a platform under prices," said Paul Harris, a Bank of Ireland analyst. The Gaza violence does not directly threaten any oil production, but traders said there was an underlying concern it could affect other countries in the Middle East, with little sign of the violence abating. Mounting evidence of Opec's compliance with production cuts, and the US Energy Department's decision to start rebuilding its crude reserves, have also helped to support oil prices in recent days. A rally in the US dollar yesterday helped to cool price gains, analysts said, as dollar-priced commodities such as oil become more expensive for holders of alternative currencies. Adding to geopolitical concerns, Russian natural gas supplies to south-eastern Europe have been reduced as a result of Russia's stand-off with Ukraine over gas prices, which began on New Year's Day. The two sides blame each other. European energy firms, which receive about 20 per cent of their gas via pipelines in Ukraine, said they had enough gas stockpiled to maintain supplies for several days. The dispute, similar to a stand-off three years ago that also disrupted supplies, is likely to raise new questions in Europe about Russia's reliability as a gas supplier. * Reuters