Brent touches one month high above $105 as Israel strikes Syria

Brent futures rose to the highest in nearly a month above $105 per barrel on Monday as an Israeli air strike on a Syrian military facility over the weekend stoked supply disruption worries from the Middle East.

Israeli officials said its second raid in days was aimed at stopping Lebanon's Hezbollah, an ally of Iran, from acquiring weapons that could be used to strike Tel Aviv if Israel follows through on threats to attack Iranian nuclear facilities. Iran denied its missiles were destined for Hezbollah and called on the region to unite against Israel.

Brent crude touched $105.49 a barrel, the highest since April 11, and was up 84 cents at $105.03 at 0324 GMT (8:54 a.m. IST). The contract extended Friday's gains that after better-than-expected job growth was reported in top oil consumer, the United States.

U.S. oil rose $1.11 to $96.72, after ending 1.7 per cent up on Friday.

"Rising geopolitical worries have increased the risk premium on oil and the fear is that the Israeli attack is going to lead to a wider involvement of other nations in the Syrian conflict," said Victor Shum, an oil consultant at IHS in Singapore. "That's allowing oil to extend gains made on the back of strong jobs data in the United States."

U.S. payrolls rose more than expected in April, pushing the unemployment rate to a four-year low of 7.5 per cent, easing concerns about a sharp slowdown in the economy. A revision also showed hiring was much stronger than previously thought in the prior two months, giving further relief to nervous investors.

The Dow and S&P 500 advanced to all-time closing highs on Friday as a result, and Asian shares and Shanghai copper gained on Monday as investors were willing to take on more risks.

The upside for oil is still likely to be capped by lingering worries over demand growth as the global economic outlook remains bleak amid ample supplies. Those twin factors may hold oil back from rising much from current levels and prompt investors to take profits from the surge unless the situation in the Middle East worsens, Shum said.

LACKS TIGHTNESS

"The market today lacks physical tightness," said Shum. "So if you keep the latest geopolitical worries aside, there is no reason for prices to be where they are. If the situation does not worsen, we may see investors take profit from the rise."

Brent has gained as much as 9 per cent in less than three weeks since the intraday low of $96.75 a barrel for the year, touched on April 18. It rose to a high of $119.17 on January 2.

Weak economic data from the world's second-biggest oil consumer China and Europe's prolonged debt crisis have weighed on prices.

China's export growth is expected to slow to around 10 per cent in the second quarter from 18 per cent in January-March, the official China Securities Journal reported on Monday.

"Although the external environment facing China has improved, our country's strong export growth rate cannot be sustained as demand is still not strong and trade protection rises," the paper quoted a report from the State Information Office.

That could signal further reason for investors to worry about China's energy and raw materials demand.

Brent looks exhausted and may retrace to $104.30, while U.S. oil may fall to $95.72, as it faces a resistance at $97.05, according to Reuters technical analyst Wang Tao.

Copyright @ Thomson Reuters 2013