Oil rose to a one-month high amid concern that Middle East unrest will disrupt supply and on growing confidence that a deal can be reached to avoid automatic U.S. spending cuts and tax increases.
Prices advanced for a second day as Israeli ground forces were poised to invade the Gaza Strip for the first time in almost four years if cease-fire efforts fail. President Barack Obama is “confident” of an agreement to avert the so-called fiscal cliff, he said in Bangkok yesterday.
“The war drum is beating in the Middle East and that almost always tends to push up oil prices,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There are reasons for optimism that the leaders will work something out to solve the fiscal cliff.”
Crude for January delivery rose $2.36, or 2.7 percent, to $89.28 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 19. Futures are up 3.5 percent this month.
Brent for January settlement gained $2.75, or 2.5 percent, to $111.70 a barrel on the ICE Futures Europe exchange in London.
Israel has massed tanks on its border east of Gaza and began to call up 75,000 reservists for a possible ground operation, the first invasion of Gaza since an assault that began in December 2008 and left more than 1,100 Palestinians and 12 Israelis dead.
As Ban Ki-moon, the United Nations secretary-general, arrived in Egypt today to help broker an end to the fighting, Khaled Mashaal, the political head of Hamas, told reporters in Cairo that the Palestinian Islamist group hadn’t asked for a truce. Israel must end its blockade of the Gaza Strip if a cease-fire is to be agreed, he said.
World leaders including Obama have called for an end to the conflict before it escalates. The assault threatens further instability in the Middle East and North Africa, regions accounting for more than 35 percent of global crude production, according to BP Plc (BP/)’s Statistical Review of World Energy.
“There is still a lot of fear and uncertainty in the Middle East,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “Anytime you hear that ground troops could be sent to Gaza, that’s going to keep the market jittery.”
Before Obama left for Asia, he began on a new round of deficit-reduction talks with top Republicans and Democrats in a bid to avoid the combination of $607 billion in automatic tax increases and spending cuts that threatens to throw the country into a recession next year.
“I am confident we can get our fiscal situation dealt with,” Obama said at the news conference in Bangkok.
“The markets are taking a more optimistic view about the fiscal cliff,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “If you don’t have a fiscal cliff you’ll probably avoid a recession and if you avoid a recession, oil prices are probably too low.”
In a sign of economic improvement, sales of previously owned U.S. homes climbed in October. Purchases of existing houses, tabulated when a contract closes, increased 2.1 percent to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington.
The U.S. is the world’s biggest oil consumer, using 18.8 million barrels a day in 2011, according to BP’s statistical review.
Oil also followed gains in U.S. equities and the weakness in the dollar. The Standard & Poor’s 500 Index rallied as much as 1.8 percent and the euro rose 0.5 percent against the dollar as of 3:17 p.m. in New York. A stronger euro and weaker dollar increase oil’s appeal as an investment alternative.
Money managers cut bullish bets on crude futures on the Nymex by 18 percent to 100,021 futures and options combined in the week ended Nov. 13, according to data from the Commodity Futures Trading Commission in its Commitments of Traders report on Nov. 16. That was the biggest reduction since May.
Electronic trading volume on the Nymex was 440,735 contracts as of 3:17 p.m. Volume totaled 570,824 contracts on Nov. 16, 7.7 percent higher than the three-month average. Open interest was 1.48 million.
To contact the reporter on this story: Moming Zhou in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Dan Stets at email@example.com