NEW YORK: Oil was little changed on Wednesday, erasing early gains after a ceasefire between Isreal and Hamas ended eight days of fighting in the Gaza strip.
The midday retreat extended several days of volatile oil trading, with prices whipsawed between fears of a deepening conflict that could engulf regional oil superpowers and hope for a ceasefire. Prices had earlier risen by more than $1.50 a barrel after an explosion on a Tel Aviv bus.
But a truce announced at midday helped ease concerns that that a week of intensive Israeli fire on the Gaza Strip and militant rocket attacks out of the enclave could widen. Israeli Prime Minister Benjamin Netanyahu has agreed to "give the...ceasefire proposal a chance," the government said.
US government data showing an unexpectedly large drop in weekly fuel stockpiles had lent support to gasoline and heating oil prices, which outperformed crude, but was ultimately too little to offset a sense of pre-holiday malaise.
"I'm seeing the market's pulse become fainter and fainter," said Tim Evans, energy analyst for Citi Futures Perspective in New York. "I think some traders are just getting an early start on the Thanksgiving holiday rather than putting on risk or even reacting to the headlines."
The current Middle East turmoil is more likely to be a "limited conflict" similar to the war with Hezbollah in July 2006 than a wider, more prolonged one, Evans said.
Brent crude futures were up 50 cents, or 0.5 percent, at $110.33 a barrel by 1:25 p.m. EST (1825 GMT), off an earlier session high of $111.46. Futures trading volume of around 350,000 lots was a third below the daily average.
US crude rose dipped 39 cents to $86.14, with activity about half the daily average. Benchmark gasoline and heating oil futures rose more than 0.6 percent.
Although little oil is produced in Israel, concern that major hydrocarbon producing Arab nations could become involved in the conflict has aroused fears that supplies from the Gulf can be disrupted.
If the truce holds, however, focus may return to the market's moribund underlying fundamentals. Euro zone finance ministers ended a meeting in Brussels on Wednesday without agreement on the next tranche of loans to Greece.
"The Middle East tensions could continue to give prices some life in the near term but we suspect that bearish economic factors will be dominant," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.
And US economic data offered limited cause for hope. Manufacturing grew in November at its quickest pace in five months and new jobless claims dropped, but consumer sentiment showed only a marginal improvement.
US crude and refined product stocks fell last week as plants processed more crude and imports dropped, data from the US Energy Information Administration showed.
Total US crude oil inventories fell 1.47 million barrels in the week to Nov. 16 to 374.47 million barrels, after analysts polled by Reuters had forecast a build of 900,000 barrels.
US inventories of distillates, which include diesel and heating oil, fell 2.68 million barrels to 112.84 million barrels, compared with forecasts for a smaller, 1.4-million-barrel drawdown. Along the East Coast, distillate inventories fell 1.63 million barrels to the lowest levels since May 2008.
"The fall in inventories comes on the back of improving demand and continued high levels of exports," analysts at Energy Aspects said in a report. More cold weather in the Northeast is likely to deepen the deficit in regional fuel stocks.