Oil rose, diverging from most other riskier assets, as Israel launched a major offensive against Palestinian militants in Gaza and announced there was more to come. But gains were capped as the US and Europe grappled with their financial woes, pushing Asian shares and base metals lower, Reuters stated.
Brent crude gained 14 cents to $109.75 per barrel by early Thursday morning after settling $1.35 higher in the previous session. US oil edged up two cents to $86.34, after ending 94 cents up.
“The overall economy is weak, but prices are biased to rise because geopolitical risks are going up,” Mitsubishi Corp risk manager Tony Nunan told Reuters.
“That’s going to be the story for the rest of the year – a weak economic outlook, but higher prices because of supply worries.”
Supply fears, coming as the oil market enters a peak seasonal demand period, and a weak consumption outlook will keep Brent swinging between $108 and $112 per barrel till the end of the year, Nunan said.
“The threat of escalating Middle East tensions boosted the geopolitical risk premium in the market, supporting both crude markets,” Reuters quoted ANZ analysts as saying in a note.
“Given the contrasting influences of weak demand prospects versus potential supply disruption concerns we think Brent and WTI could trend sideways for the rest of the week in volatile trading, unless we see more attacks in the Middle East.”
Reuters said the market was also keeping an eye on the negotiations over the looming US “fiscal cliff”, where investors worry that if a deal is not agreed, a package of tax increases and spending cuts mandated to come into force next will pitch the world’s biggest economy and top oil consumer back into recession.