Oil jumps, but Israel-Hamas little cause for alarm

By Jonathan Leff

SINGAPORE (Reuters) - A 6 percent jump in oil prices on Monday after one of the worst days of Israeli-Palestinian violence in decades underscored the market's sensitivity to conflict in a region that produces a third of global crude, but traders saw little to suggest any real impact on supplies.

Oil traders were startled by the eruption of fighting over the weekend, as Israeli warplanes pounded the Gaza Strip in response to intensifying rocket and mortar fire from the Islamist Hamas group, which ended a six-month cease-fire a week ago.

Israel prepared for a possible invasion after killing 307 Palestinians in three days of air raids, with Saturday's attacks among the bloodiest days in 60 years of conflict.

For the moment, there seemed little risk of the violence engulfing the region's big oil suppliers, or even provoking more sabre-rattling support beyond Iran, which was quick to call for a sterner response from Arab governments.

For some, it seemed similar to the war in Lebanon in the summer of 2006, which caused a brief spike in oil prices but ended a month later without disrupting a drop of crude.

"The only danger regarding energy production is the conflict escalating to involve neighbouring countries, which does not look likely at this juncture," said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a U.S.-based options house.

"The reaction from traders is one of locking in gains from short positions during a week of very thin trading. The current situation does not dictate a continued rise in prices."

U.S. light, sweet crude surged earlier by more than $2, but gains seeped away by midday, leaving oil up 91 cents or 2.4 percent at $38.62 a barrel by 0616 GMT. Prices had jumped on Friday on signs last week that some of OPEC's top producers were implementing the group's biggest-ever output cut.