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PARIS: Oil prices surged Monday, lifting energy stocks and other commodities on concern that the Israeli attacks on Hamas would stoke tensions across the Middle East and disrupt crude supplies. In a third straight day of deadly air strikes against Hamas Monday, Israeli warplanes pounded targets in Gaza. The attacks brought the death toll in Gaza to more than 300, according to Palestinian medical officials.
Those events underscored the market's sensitivity to conflict in a volatile region that produces a third of global crude. Some analysts also said crude is benefiting from heightened tensions between India and Pakistan.
On the New York Mercantile Exchange, light, sweet crude for February delivery rose $1.05, or 2.8 percent, to $38.76 a barrel. It earlier touched a session high of $42.20. The February CBOT gold futures contract added 1.3 percent to $882.5 an ounce, while copper prices also rallied.
Helen Henton, head of commodity research at Standard Chartered Bank in London, said that while the price spike was driven by events in the Middle East, it also suggested that "over the longer term, the oil price has found a floor."
Today in Business with Reuters
Before the latest trouble in the Middle East, the price of a barrel had plunged - from a record $147.27 in July to a recent low of $33.87 Dec. 19 - as demand collapsed. The top exporters responded by slashing production.
This month, the oil producing cartel OPEC announced a 2.2 million barrel-a-day cut in output quotas, effective at the start of January. That was the third cut since September.
"As the OPEC cuts start to feed through, the market will appear tighter" and prices should start to rise Henton said.
Still, analysts stressed that the backdrop to the market remains one of soft demand as the world's major economies slip deeper into recession.
That was reflected by the December oil market reports from major official forecasters. The U.S. Department of Energy, the International Energy Agency and the OPEC Secretariat all significantly cut their estimates for oil demand growth forecasts for 2009.
In a research report released after the OPEC announcement this month, a Deutsche Bank analyst, Adam Sieminski, forecast that additional output cuts would be enacted throughout next year as demand stays soft.
Henton at Standard Chartered said that $40 a barrel appeared to be too low, as production cuts feed through, as emerging market economies are widely expected to recover by the start of 2010 and as it becomes apparent that extraction investment had slowed.
"There's a danger that the price could move quite sharply - there could be a crunch" in 2009, she said, as supply dwindles.
Still for coming months, she added, the outlook was for soft but "very volatile" prices.
European stocks were mostly higher Monday, following a similar pattern in Asia, lifted by energy and mining shares.
The FTSE 100 index in London gained 1.9 percent and the DAX in Frankfurt climbed 1.6 percent.
On Wall Street, the Dow Jones industrial average shed 0.6 percent and the S&P 500 index lost 1.5 percent.
Martin Van Vliet, an economist at ING in Amsterdam, cautioned against assuming a meaningful end-of-year rally in European stocks given thin market conditions and continued weakness in financial stocks.
"Let's get into 2009 and see if there is some light at the end of the tunnel - then we can start thinking about a recovery in 2010," he said.
Energy and resource stocks led the gains in Europe. BP, the British oil company, added 4.2 percent and Repsol of Spain was up 1.9 percent. BHP Billiton, the world's biggest mining company, advanced 5.1 percent in London.
Several European data releases Monday served to highlight the weak state of activity in Europe. A survey of Italian business confidence fell to a fresh record low in December, plummeting to 66.6 from 71.6 in November, while Spanish producer price data and an inflation report from the German state of Saxony suggested that prices in the euro zone are still under downward pressure.
Asian stocks climbed as speculation about merger activity lifted insurers, while commodity producers advanced.
The Nikkei 225 stock average added 0.1 percent in Tokyo, while the Sensitive Index gained 1.4 percent in Mumbai. Markets in Indonesia, Malaysia, and the Philippines were closed.
