SINGAPORE: Brent crude held steady above $109 a barrel on Thursday as Israeli strikes against the Gaza Strip renewed worries about supply disruption, while a weak global economic outlook kept gains in check.
Oil rose, diverging from most other riskier assets, as Israel launched a major offensive against Palestinian militants in Gaza and also announced there was more to come. But gains were capped as the United States and Europe grappled with their financial woes, pushing Asian shares and base metals lower.
Brent crude gained 14 cents to $109.75 a barrel by 0359 GMT after settling $1.35 higher in the previous session. US oil edged up 2 cents to $86.34, after ending 94 cents up.
"The overall economy is weak, but prices are biased to rise because geopolitical risks are going up," said Tony Nunan, a risk manager at Mitsubishi Corp. "That's going to be the story for the rest of the year - a weak economic outlook, but higher prices because of supply worries."
Supply fears, coming as the oil market enters a peak seasonal demand period, and a weak consumption outlook will keep Brent swinging between $108 and $112 a barrel till the end of the year, Nunan said.
"The threat of escalating Middle East tensions boosted the geopolitical risk premium in the market, supporting both crude markets," analysts at ANZ said in a note.
"Given the contrasting influences of weak demand prospects versus potential supply disruption concerns we think Brent and WTI could trend sideways for the rest of the week in volatile trading, unless we see more attacks in the Middle East."
The market is also keeping an eye on the negotiations over the looming US "fiscal cliff".
Investors are worried that a package of tax increases and spending cuts mandated to come into force next year if a deal is not agreed - the so-called "fiscal cliff" - will pitch the world's biggest economy and top oil consumer back into recession.
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