Oil Rises as Lebanon Rockets Hit Israel, Widening Gaza Conflict

By Grant Smith and Christian Schmollinger

Jan. 8 (Bloomberg) -- Crude oil rose, rebounding from its biggest decline in seven years, after rockets fired from Lebanon hit Israel, raising concern the widening Gaza conflict will threaten Middle East oil supplies.

Further rockets fired from Lebanon landed in northern Israel after a salvo fired last night, Agence France-Presse reported. Yesterday, crude plunged the most since 2001 as U.S. stockpiles increased more than expected and job data signaled the recession is deepening.

“War normally always escalates,” said Jochen Hitzfeld, an analyst at UniCredit Markets & Investment Banking in Munich. “Everyone knows that the first oil crisis started with a war in Israel, so it’s very important.”

Crude oil for February delivery climbed as much as 83 cents, or 2 percent, to $43.46 a barrel in electronic trading on the New York Mercantile Exchange. It was at $43.45 at 9:28 a.m. London time.

Yesterday, futures dropped $5.95 to $42.63 a barrel, the lowest settlement since Dec. 30. That was the biggest percentage decline since Sept. 24, 2001. Futures on the exchange are down 56 percent from a year ago.

Rocket Attacks

The rockets hit western Galilee, in northern Israel, close to the border with Lebanon, slightly injuring two people and leaving several others needing treatment for shock, police said.

The attacks come a day after Hassan Nasrallah, leader of the Islamic Hezbollah militia, warned of “all possibilities” against Israel in reaction to the Gaza conflict. Israeli forces fought a monthlong war against Hezbollah in Lebanon in 2006.

Brent crude oil for February settlement was at $46.94 a barrel, up $1.08, on London’s ICE Futures Europe exchange at 9:28 a.m. London time.

Crude oil yesterday fell by the largest percentage in seven years after the larger-than-expected gains in oil and product stockpiles.

U.S. inventories of crude oil rose 6.68 million barrels to 325.4 million barrels last week, the highest since May, the Energy Department said yesterday in a weekly report. Supplies were forecast to increase 800,000 barrels, according to the median of forecasts by 14 analysts in a Bloomberg News survey.

Crude inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 14 percent to 32.2 million barrels last week, the highest since at least April 2004, when the department began keeping track of supplies there.

U.S. fuel consumption during the four weeks ended Jan. 2 averaged 20.1 million barrels a day, down 2.9 percent from a year earlier, the Energy Department report showed.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net. Grant Smith in London at gsmith52@bloomberg.net