3 Jan 2009

Oil surges 4% amid tensions in Middle East, Europe

10:07 am on 3 January 2009

Oil prices jumped 4% on Friday amid rising tensions in the Middle East and a dispute between Russia and Ukraine over natural gas supplies that spawned worries over fuel availability in Europe.

The gains were encouraged by a rally in United States stocks to a two-week high, with dealers hopeful the worst of the financial crisis that sent energy prices plummeting more than $US100 a barrel since July was over.

US light, sweet crude jumped $US1.74 to settle at $US46.34 a barrel while London Brent rose $US1.32 to $US46.91 per barrel.

Oil prices were down from their peaks of more than $US147 a barrel hit in mid-July as a global economic slowdown shrinks energy demand, but a series of production cuts by OPEC since September has helped to end the slide in recent weeks.

OPEC's most recent agreement in mid-December to slash 2.2 million barrels per day from 1 January was the cartel's biggest-ever output cut, and the group's kingpin Saudi Arabia has signaled it could cut further if needed.

Adding to oil's gains on Friday, fighting continued between Israel and Hamas, with Palestinian Islamists vowing to avenge the death of a senior Hamas leader. The market is watching closely to see if the fighting spreads to other areas of the Middle East.

Meanwhile, Russia, the world's biggest non-OPEC oil nation, shut off natural gas to its neighbor Ukraine on Thursday after a contract dispute, but said it had increased supplies to other European states to try to reassure its premium-paying customers.

However, some European countries began to suffer from reduced supplies on Friday.

Russia's gas export monopoly Gazprom says some countries in the Balkans had told it they were getting less gas than expected and importers in Hungary and Poland said pressure on their pipelines had dropped.

Russian natural gas supplies to Romania suddenly fell by 30% to 40% on Friday, the head of Romania's state-controlled pipeline operator Transgaz said.

The Czech Presidency of the European Union said it would call a crisis meeting of envoys in Brussels on Monday to discuss the row, which both Russia and Ukraine had said would not affect other European countries.