Oil futures rose Thursday on growing concerns about conflict in the Middle East and declining supplies of crude in the U.S.
Prices jumped in the early morning hours after Lebanese troops fired on Israeli warplanes. A conflict between Israel and Lebanon wouldn't itself have much impact on oil supplies, but traders worry that any hostilities in the Middle East would eventually draw in big oil producers such as Saudi Arabia and Iran.
Energy traders also remain concerned that a threatened incursion by Turkish armed forces into Iraq in search of Kurdish rebels would cut oil supplies out of northern Iraq.
The uneasiness about the Middle East helped crude futures add to Wednesday's gains, which followed an Energy Information Administration report that showed oil inventories fell by 5.3 million barrels last week, much more than analysts expected. That report reversed a three-day downward price trend, and put energy traders back in a bullish mood, analysts said.
"Yesterday's EIA report pretty much changed the personality of the market," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.
Light, sweet crude for December delivery rose $1.16 to $88.26 a barrel on the New York Mercantile Exchange. November gasoline rose 2.5 cents to $2.1725 a gallon, and November heating oil added 1.5 cents to $2.357 a gallon on the Nymex.
Other geopolitical developments were also supporting energy prices, analysts said, including the Bush administration's announcement of harsh new sanctions against Iran and an attack by rebels from Darfur on an oil field in a neighboring Sudanese region.
The weather also was a concern; three Mexican ports that export energy commodities to the U.S. were closed due to a storm.
November natural gas fell 6.4 cents to $6.908 per 1,000 cubic feetdue to high inventories and moderate weather forecasts.
In London, December Brent crude rose $1.08 to $85.45 a barrel on the ICE Futures exchange.
At the pump, gas prices slipped 0.2 cent overnight to a national average of $2.82 a gallon, according to AAA and the Oil Price Information Service.
Government economic reports sent energy investors mixed signals on Thursday. Sales of new homes jumped unexpectedly in September, the Commerce Department said, countering a report on Wednesday that showed existing home sales dropped sharply in the same month. Also on Thursday, the Labor Department said the number of people filing new unemployment claims last week fell. But a separate Commerce Department report said orders for big-ticket manufactured goods dropped an unexpected 1.7 percent last month.
Energy traders closely watch economic reports and the stock market for signs the economy might be cooling, which would reduce demand for oil and petroleum products. The Dow Jones industrial average recovered from earlier losses Thursday on the new home sales report. But analysts remain wary of stocks' direction after last Friday's 366-point decline, which contributed to oil futures' losses earlier this week.
"Lest we get too starry-eyed, a major decline in the equity markets could still short-circuit any rally in energy," said Edward Meir, an analyst at MF Global UK Ltd., in a research note.
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