* Oil flips into red after two sessions of gains
* Israeli offensive goes into fourth day
* Dollar falls against euro as Middle East conflict weighs
* Oman says to boost 2009 oil output to about 810,000 bpd
(Updates prices, adds detail)
By Chua Baizhen
SINGAPORE, Dec 30 (Reuters) - Oil fell below $40 on Tuesday
as demand concerns overshadowed Middle East crude supply fears
amid the Israeli-Hamas conflict, with prices on track to end
the year down 60 percent, their biggest annual loss on record.
Crude jumped as much as 12 percent on Monday after Israel
launched its fiercest air offensive in the Hamas-ruled Gaza
strip in decades and prepared for a ground assault, raising
fears that enraged Arab crude-producing neighbours would react.
By 0504 GMT, U.S. crude <CLc1> was down 24 cents at $39.78
a barrel, after having gained almost 1 percent earlier in the
day. London Brent <LCOc1> fell 34 cents to $40.21.
Oil is heading for a loss of nearly 60 percent this year,
its biggest annual fall since futures began trading 25 years
ago.
"People are still wary of the global economic problems.
There is still pessimistic news coming out of the States," said
Gerard Rigby, an analyst at Fuel First Consulting in Sydney.
Traders will look out for the U.S. Conference Board's
December consumer confidence report later in the day for fresh
indications of U.S. economic health.
Despite the gloomy outlook for the economy and oil demand,
crude oil speculators on NYMEX boosted net long positions in
the period between Dec. 16 and Dec. 22 to their highest since
mid-May, data from the U.S. Commodity Futures Trading
Commission showed on Monday. []
"I'll keep an eye on stocks and the dollar as well," Rigby
said.
The Middle East conflict weighed on the greenback, giving
upside support to dollar-denominated assets, including oil and
other commodities. []
Four days of Israeli bombardment have killed more than 300
Palestinians, while at least three Israelis were killed in
retaliation by Islamist militants in Gaza on Monday.
[]
But economic worries continue to cap oil gains, with Wall
Street sliding on Monday after a failed $17-billion joint
venture between Kuwait and Dow Chemical threatened to unravel
Dow's planned takeover of Rohm & Haas, one of the year's larger
merger deals. [].
The economic slump has hit fuel consumption worldwide,
bringing crude prices down more than $100 a barrel from a peak
of more than $147 touched in July.
OPEC agreed its biggest-ever production cut of 2.2 million
barrels per day (bpd) in December to fight the market's slide.
The cartel has cut output three times in an effort to remove
about 5 percent of world supply.
Ecuador said it would monitor oil markets after OPEC makes
effective its January output cuts, to decide whether to back
another emergency meeting by the oil cartel. []
But even as OPEC moves to reduce supply, non-OPEC oil
exporter Oman's oil minister said the country would boost oil
production in 2009 to about 810,000 bpd from 750,000 to 760,000
bpd this year. []
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, while distillate inventories rose by 1
million barrels and gasoline stocks increased by 1.5 million
barrels. []
(Editing by Clarence Fernandez)
