* Oil steadies after early rise above $40
* Israeli air strikes go into third day
* China to build up oil reserves while price is low
(Updates prices at settlement)
By Edward McAllister
NEW YORK, Dec 29 (Reuters) - Oil prices rose more than $2
on Monday amid concern that Israeli attacks on Hamas could
disrupt Middle East crude oil supplies and as the dollar
weakened.
U.S. light, sweet crude <CLc1> settled up $2.31 at $40.02
a barrel, below earlier highs above $42, with thin post-holiday
trade making for a volatile day in the market.
London Brent crude <LCOc1> settled up $2.18 at $40.55 a
barrel, after touching a session high of $43.18.
Oil is on track for a nearly 60 percent loss this year, the
biggest annual fall since futures began trading 25 years ago.
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.
"Certainly, oil prices remain sensitive to geopolitical
developments, especially those emanating from that part of the
world, but the declining dollar, low volume and the return of
bargain-hunting Europeans are probably more to blame," Mike
Fitzpatrick, vice president at MF Global, said in a report.
The dollar fell broadly on Monday, eroded by a grim outlook
for the U.S. economy. [] Dollar weakness can
increase the investment appeal of oil and other commodities.
Economic worries tempered earlier gains for oil, with Wall
Street hit by failure of a $17.4 billion joint venture between
Kuwait and Dow Chemical, potentially threatening Dow's
acquisition of rival Rohm & Haas. []
"Equities turned around after crude was up on Gaza, so that
was a factor," said Gene McGillian, analyst at Tradition Energy
in Stamford, Connecticut.
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.
OPEC agreed its biggest ever production cut of 2.2 million
barrels per day in December, to fight the market's slide.
Libya and Abu Dhabi's National Oil Co have both joined
leading producer Saudi Arabia, vowing to cut output by January.
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. []
A poll of analysts ahead of weekly U.S. government
inventory data forecast U.S. crude stocks fell by 1.4 million
barrels last week. The analysts predicted 1 million-barrel
build in distillate inventories and a 1.5 million-barrel build
in gasoline stocks.
(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)
