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Oil holds gains midday in thin trade, supported by tensions in Pakistan

Monday, December 31, 2007

LONDON (Thomson Financial) - Oil continued higher midday, holding onto some of the gains it posted late last week after the assassination of Pakistani opposition leader and former prime minister Benazir Bhutto, ahead of US inventories data due out later this week.

At 12.06 pm, New York's WTI crude for February delivery was up 5 cents at 96.05 usd per barrel. London's Brent crude for February delivery was up 30 cents at 94.18 usd per barrel.

Prices eased a touch at the end of last week after weak US economic data fuelled fears demand from the world's largest oil consumer may be on the wane, having risen sharply in the wake of Bhutto's assassination.

However, fears that political unrest in the region could spread in the run-up to parliamentary elections next month are continuing to support prices, which typically rise when geopolitical tension flares.

Although Pakistan is not a major oil producer, political problems in Asia could have a strong psychological effect on the market, which is already worried about tightness of supply following a draw on crude stockpiles in major consuming countries earlier this year.

"Until it becomes evident after the New Year that the past month's 20 mln barrel crude stock draw in the US is being replenished, the market will remain sensitive to any additional weakening in the dollar or geopolitical developments capable of disrupting oil flows," noted Jim Ritterbusch, president of Ritterbusch & Associates.

The market will be closely monitoring the expected Pakistani parliamentary elections on Jan 8, which may yet be postponed. A cabinet official said this morning that the elections will be delayed at least four weeks or more after the unrest that swept the country following the assassination.

However, Bhutto's opposition party has rejected any delay in the elections, senior party official Shah Mahmood Qureshi said.

"We are ready for elections and do not want any delay. We demand immediate elections -- and on January 8," he said.

Oil traders will also be focusing on stockpile data from the US Department of Energy due out later this week, analysts said.

The weekly snapshot of DoE crude and products stocks has underpinned prices in recent weeks, with crude inventories shown to have fallen sharply in the department's last two reports.

US crude stocks are now in the lower half of the average range for this time of year, the DoE said.

"We... have been getting a string of bullish EIA numbers out over the last few weeks, and a set of higher-than-expected draws on Thursday, postponed from Wednesday due to the New Year break, could usher in yet more buying," noted MF Global analyst Ed Meir.

Posted by MOHAMED SAID at 6:37 AM  

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