* Oil above $40 a barrel; geopolitical risk returns
* Israeli air strikes go into third day
* China to build up oil reserves while price is low
(Adds quote, updates prices)
By Jane Merriman
LONDON, Dec 29 (Reuters) - Oil prices rose above $40 a
barrel on Monday, boosted by the weak dollar and violence
between Israel and Hamas that served as a reminder of tensions
that could threaten crude supplies from the Middle East.
U.S. light, sweet crude <CLc1> was up $3.08 at $40.79 a
barrel by 1143 GMT, below a session high of $42.20.
Oil is on track for a nearly 60 percent loss this year, the
biggest annual fall since futures began trading 25 years ago.
London Brent crude <LCOc1> rose $3.23 to $41.60 a barrel,
after touching a session high of $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," Olivier Jakob, of consultants
Petromatrix, said in a research note.
Israeli aircraft attacked Hamas targets in Gaza on the third
day of an offensive that has killed more than 300 Palestinians,
many of them civilians. []
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 <XAU=> rose nearly 3 percent to its highest since early
October on the weak dollar and after the Middle East violence.
The dollar was down against the euro. <EUR=>
"The level and intensity of violence this time has warranted
a fiercer response from the broader Arab world and beyond," said
Raja Kiwan of energy consultants PFC Energy.
Kiwan said, however, that the large amount of bearish
economic news would ultimately overshadow such geopolitical
factors.
OPEC COMPLIANCE
Oil had broken a nine-session losing streak on Friday partly
on evidence of OPEC compliance with its biggest ever production
cut.
The Abu Dhabi National Oil Co, the UAE's main producer, said
it would cut January and February oil exports by much more than
some refiners had expected. []
The allocations were some of the first hard evidence that
Gulf exporters were implementing the Organization of the
Petroleum Exporting Countries' 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 percent of world supply to halt the slump.
OPEC President Chakib Khelil said on Saturday he expected
oil prices to stabilise within the next two months after the
output cuts. []
Oil is down more than $100 a barrel from a record peak of
more than $147 in July, depressed by the downturn in the world
economy, which has hit demand for fuel.
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.
[]
(Reporting by Jane Merriman in London, Luke Pachymuthu in Dubai
and Chua Baizhen and Jonathan Leff in Singapore, editing by
Anthony Barker)
