Oil Jumps Above $40 on Gaza Conflict

By George Jahn

Vienna, Austria -- Tensions generated by a widening conflict between Israel and Palestinian militants sent crude prices up sharply to above $40 a barrel Monday, with gasoline and heating oil also making sizable gains.

Prices also were supported by indications that key OPEC members were acting on commitments to cut back production, in line with a decision earlier this month to take a daily 2.2 million barrels off the market.

Light, sweet crude for February delivery rose $2.51 to $40.22 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. The contract on Friday rose $2.36 to settle at $37.71.

Israel expanded its air offensive against Gaza's Hamas rulers Sunday and prepared for a possible ground invasion. Arab leaders protested the attacks and Syria broke off indirect peace talks with the Jewish state.

With the two-day death toll nearing 300, Hamas fired rockets deeper than ever into Israel.

"There could be fear that an escalating Middle East conflict could disrupt supplies, though I don't see that happening at this point," said Gerard Rigby, energy analyst with Fuel First Consulting in Sydney. "(Israel-Palestinian conflict) always causes a bit of a blip and is one component that could support prices short-term."

In Vienna, JBC Energy, in its daily newsletter, said prices were also "supported by news that the UAE has decided to reduce crude supplies in January and February in line with the OPEC production cuts." The United Arab Emirates are the fourth-largest producers in the 13-nation cartel.