LONDON, ENGLAND: Oil prices rose above US$40 a barrel yesterday, up nearly 8 per cent on the previous session, after violence between Israel and Hamas served as a reminder of tensions that could threaten crude supplies from the Middle East.

US light, sweet crude was up US$3.18 at US$40.89 a barrel by 1000 GMT (6pm Singapore time), below a session high of US$42.20.

Oil is on track for a nearly 60 per cent loss this year, the biggest annual fall since futures began trading 25 years ago.

London Brent crude rose US$3.24 to US$41.61 a barrel, after touching a session high of US$43.18.

'Geopolitics had disappeared from the oil scene for the last couple of months but will regain some price premium with the latest Israeli attack in Gaza,' Mr Olivier Jakob, of consultants Petromatrix, said in a research note.

Israeli warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive day and the Jewish state prepared to launch a possible invasion after killing 307 Palestinians in air raids.

The attacks enraged Arabs across the Middle East and highlighted the risk, however remote, that the conflict could threaten oil supplies from the region.

Gold rose more than 2 per cent to its strongest since early October after the Middle East violence.

Oil had broken a nine-session losing streak on Friday, partly on evidence of the Organisation of the Petroleum Exporting Countries' (Opec's) compliance with its biggest ever production cut.

The Abu Dhabi National Oil, the UAE's main producer, said it would cut January and February oil exports by much more than refiners had expected. The allocations were some of the first hard evidence that Gulf exporters were implementing the Opec's Dec 17 deal to cut supplies by 2.2 million barrels per day. Top exporter Saudi Arabia had informed its customers of cuts even before the meeting.

Opec has cut output three times in an effort to remove about 5 per cent of world supply to halt the slump. Its president Chakib Khelil said on Saturday that he expected oil prices to stabilise within the next two months after the output cuts.

Oil is down more than US$100 a barrel from a record peak of more than US$147 in July, depressed by the downturn in the world economy which has hit demand for fuel.

The International Energy Agency's chief economist, Mr Fatih Birol, predicted yesterday that oil prices will rebound to around US$100 per barrel between 2010 and 2015. He told an energy conference in Istanbul that he saw downward pressure on oil prices next year but added that he expected prices to move up again in 2010, with a recovery in the world economy.

China's energy chief said the world's second-largest oil user after the United States would take advantage of falling oil prices to boost imports and build up its fledgling oil reserves. --REUTERS