* Oil pares gains after early rise above $40
* Israeli air strikes go into third day
* China to build up oil reserves while price is low
(Recasts, updates prices, changes timeline from previous
LONDON)
By Edward McAllister
NEW YORK, Dec 29 (Reuters) - Oil prices pared gains on
Monday after an early rise in response to a weak dollar and
Israeli attacks on Hamas that raised concern about Middle East
crude oil supplies.
U.S. light, sweet crude <CLc1> was up 64 cents at $38.35 a
barrel by 12.01 p.m. EST (1701 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 67 cents to $39.04 a
barrel, after touching a session high of $43.18.
"You had two different sides to the market: early on an
initial emotional run up and, as the day wore on, cooler heads
prevailed and selling started to come in," said Phil Flynn,
analyst at Alaron Trading, Chicago.
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, raising
concerns that the conflict could threaten oil supplies from the
region.
But economic worries should outweigh geopolitics in the
Middle East. The dollar fell broadly, pressured by the gloomy
outlook for the U.S. economy. <EUR=>
"[] Just backing off high after the early surge.
Rallies continue to be suspect," said Tom Bentz, analyst at BNP
Paribas Commodity Futures Inc.
OPEC COMPLIANCE
Oil is down more than $100 a barrel from a record peak of
more than $147 in July, depressed as the downturn in the world
economy has hit demand for fuel.
Prices on Friday had broken a nine-session losing streak,
partly on evidence of OPEC compliance with its biggest ever
production cut, agreed in December, to fight the market's
slide.
Libya has told oil companies to curb output by 270,000
barrels per day from Jan. 1, exceeding the reduction it needs
under OPEC's agreement to cut output. []
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 among the first concrete examples that
OPEC exporters were implementing the Organization of the
Petroleum Exporting Countries' Dec. 17 deal to cut supplies by
2.2 million barrels per day.
Saudi Arabia, the world's largest exporter, 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.
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. []
(Additional reporting by Robert Gibbons in New York, Jane
Merriman in London, Luke Pachymuthu in Dubai and Chua Baizhen
and Jonathan Leff in Singapore; Editing by David Gregorio)
