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Oil Rises on Concern Middle East Tension Will Disrupt Supplies

Nov. 16 (Bloomberg) -- Oil rose on concern that the clash between Israel and Hamas will escalate into a wider conflict that would endanger Middle East crude shipments.

Futures advanced 1.4 percent as Israel extended its bombing of Gaza while Palestinian missiles struck areas around Jerusalem and Tel Aviv. Egyptian Prime Minister Hisham Qandil visited Gaza today and called for an international effort to end the violence. Israel’s army said it has deployed tanks near the Gaza border and called up reservists.

“When there is shooting in the Middle East, and it involves Israel, oil prices are going to move higher,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “The fighting doesn’t have to be near oil production to have an impact on prices.”

Crude oil for December delivery, which expired today, climbed $1.22 to $86.67 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 6. The more-actively traded January West Texas Intermediate oil contract gained $1.05, or 1.2 percent, to $86.92.

Brent oil for January settlement increased 94 cents, or 0.9 percent, to end the session at $108.95 a barrel on the London- based ICE Futures Europe exchange. The price rose after Statoil ASA, Norway’s largest energy company, said its Troll C field in the North Sea will remain shut after it found corrosion on two tanks in separate gas-treatment systems, cutting the country’s crude output by close to 10 percent.

‘Extra Dollar’

“Fighting between Israel and Hamas, together with the disruption in the North Sea production, is good for an extra dollar in the crude price,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “It’s hard to be short when there’s shooting between Israel and the Palestinians in Gaza.”

Air-raid sirens sounded in both Jerusalem and Tel Aviv. At least one rocket landed south of Jerusalem in the Gush Etzion region of the West Bank, where Jewish settlements are located, hitting an “open area” with no casualties or damage reported, Micky Rosenfeld, an Israeli police spokesman, said by phone. A blast was heard in Tel Aviv at about 1:30 p.m. and air-raid warnings sounded around the same time.

“The bombing has been heightened and it could disrupt oil trade,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “The geopolitical tension will keep the market higher.”

Israel said yesterday it’s ready to step up its operation if rocket fire continues, signaling the possibility of the first ground assault on Gaza since December 2008, when more than 1,100 Palestinians and 12 Israelis dead.

‘Fully Entitled’

Palestinians are “fully entitled” to defend themselves against “any forms of Israeli aggression,” Iran’s Deputy Foreign Minister Abbas Araqchi said in an interview with Russian state broadcaster RT.

Hamas, the Islamic group that controls the Gaza Strip, is fighting for a “just cause,” Iran’s Araqchi was cited as saying in the interview by RT, according to a transcript of his comments translated into Russian and e-mailed today.

“Going into the weekend, it’s difficult for traders to ignore the growing tensions in the region,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The bombs continue to fly and people are going to think twice about being short.”

Countries in the Middle East and North Africa accounted for 36 percent of global oil production and held 52 percent of proved reserves in 2011, according to BP Plc’s Statistical Review of World Energy.

Gulf Fire

Black Elk Energy Offshore Operations LLC, a closely held oil and natural gas producer, said a fire at its platform in the U.S. Gulf of Mexico has been extinguished. Two people are missing, a company spokeswoman said. The platform was not producing oil or natural gas at the time of the fire.

“The fighting in the Middle East and the fire in the Gulf of Mexico have been bullish for both WTI and Brent,” Wittner said. “There are still macroeconomic issues that are keeping a lid on prices.”

The U.S. is facing a “fiscal cliff,” a combination of $607 billion in tax increases and spending cuts that will begin in January without action from Congress. Lawmakers of both parties want to avoid a short-term shock to the economy while making progress on long-term deficit reduction.

House Speaker John Boehner said he offered a “framework” including new revenue to cut the U.S. budget deficit in his first face-to-face talks today with President Barack Obama and top Congress leaders since the Nov. 6 election. Both sides “agreed to do everything possible to find a solution that averts the so-called fiscal cliff,” Jay Carney, the White House press secretary, said in a statement after the meeting.

Electronic trading volume on the Nymex was 514,627 contracts as of 2:59 p.m. Volume totaled 640,713 contracts yesterday, 21 percent higher than the three-month average. Open interest was 1.51 million, the least since Sept. 5.

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