Oil Advances in New York After Airstrikes by Israel

Oil advanced after Israel carried out a series of airstrikes in the Gaza Strip that killed the leader of Hamas’s militant wing, bolstering concern that unrest in the Middle East will intensify and affect supplies.

Futures rose 1.1 percent after an attack killed Ahmed al- Jabari, according to Ashraf al-Qedra, a spokesman for the Hamas- run Health Ministry. Israel said it was ready to use ground troops to end attacks after more than 115 rockets were fired from Gaza into Israel this week.

“The Israeli strike on Gaza has raised the security premium,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “The Israelis made it clear that this may be the first of many strikes. This episode raises tension in an already troubled region.”

Crude oil for December delivery advanced 94 cents to $86.32 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 6. Prices are down 13 percent this year.

Prices were little changed after the American Petroleum Institute reported U.S. oil inventories rose 1.35 million barrels to 373 million last week. The December oil contract traded at $86.45 a barrel at 5:12 p.m. in electronic trading.

Brent oil for December settlement, which expires tomorrow, rose $1.35, or 1.2 percent, to end the session at $109.61 a barrel on the London-based ICE Futures Europe exchange. The more actively traded January contract gained $1.14 to $108.48.

“This is a clear statement that we won’t continue to tolerate this violence against us,” Israeli Vice Prime Minister Silvan Shalom said. Israel is prepared for an escalation in attacks from Gaza in response, Shalom said.

Israel followed the initial attack on Jabari with multiple airstrikes. Columns of smoke were rising above Gaza, according to eyewitnesses. The Israeli army said it called up reserves in advance of any possible infantry assault.

‘Direct Hits’

Mortar shells from Syria have also drawn retaliatory strikes from Israel. Israeli tank fire across the Syrian frontier on Nov. 12 was aimed at the source of the mortar fire and scored “direct hits,” the army said in an e-mailed statement.

“The Israelis and Hamas are lobbing missiles at each other, which isn’t unusual,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The fact that Israel is also exchanging fire with Syria is increasing worry that everything is going to hit the fan.”

President Barack Obama said at a White House news conference today that he wants a ‘diplomatic’ resolution to the conflict over the Persian Gulf nation’s nuclear program. Sanctions aimed at stopping the Islamic republic’s atomic program have hindered its ability to export crude oil.

Iranian Output

Iranian crude production declined 200,000 barrels a day to 2.65 million in October, the lowest level since February 1990, according to a Bloomberg survey of oil companies, producers and analysts.

Countries in the Middle East and North Africa were responsible for 36 percent of global oil production and held 52 percent of proved reserves in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy.

“Prices surged on the initial shock that Israel killed the Hamas leader,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Tension between Israel and Hamas is ongoing, not something new.”

Oil declined earlier on reports that U.S. retail sales and wholesale prices decreased in October. Purchases fell 0.3 percent, according to the Commerce Department in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.2 percent drop.

Wholesale Prices

Wholesale prices slipped for the first time in five months, the Labor Department reported. The 0.2 percent decline in the producer price index came after a 1.1 percent increase the prior month. A 0.2 percent gain was the median estimate in a Bloomberg survey. Excluding volatile food and energy, the so-called core measure fell 0.2 percent, the first drop since November 2010.

The dollar slid as much as 0.6 percent against the euro on the American economic figures and concern that the U.S. won’t make progress with its budget. A weaker dollar and stronger euro increase the appeal of raw materials as an investment.

An Energy Department report tomorrow will probably show that U.S. crude stockpiles rose 2.65 million barrels last week, according to the median of 10 analyst responses in a Bloomberg survey. Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, declined in the week ended Nov. 9, the survey showed.

The department is releasing supply data at 11 a.m. tomorrow in Washington, a day later than usual because of the Veterans Day holiday on Nov. 12.

Fuel Prices

Gasoline for December delivery climbed 2.52 cents, or 0.9 percent, to $2.679 a gallon in New York. December heating oil increased 2.74 cents, or 0.9 percent, to $2.9882 a gallon.

Electronic trading volume on the Nymex was 655,543 contracts as of 5:10 p.m. Volume totaled 829,142 contracts yesterday, the most since May 4. Open interest was 1.54 million, the least since Sept. 5.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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