Crude oil rose for a second day in New York after Israeli air strikes in the Gaza strip raised concerns that supply may be disrupted from the Middle East, the world's largest producing region. The air strikes killed more than 285 people, prompting protests across the region from Saudi Arabia to Syria. Israel called up 7,000 reservists after two days of attacks on the Hamas-controlled region. The Middle East produces almost a third of the world's oil. ``A big enough supply-side issue, real or potential, is definitely something that the market could latch onto to stage a bit of a recovery,'' said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. Crude oil for February delivery rose as much as $2.11, or 5.6 percent, to $39.82 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $38.50 at 1:20 p.m. in Singapore. The number of February crude oil contracts traded was 4,068 compared with a daily average 232,000 this year because most traders are on holidays. ``There is thin trading and markets can easily go up and down on low volumes,'' Ken Hasegawa, an analyst with Newedge Brokers in Tokyo, said by telephone today. The latest tensions in the Middle East are prompting traders to close their positions in the oil market, he said. Oil jumped 6.7 percent to $37.71 on Dec. 26, the biggest gain in two weeks for a contract closest to expiration. Prices rose as OPEC member-states cut output to prevent a glut and Israel threatened to retaliate for a string of rocket attacks since a six-month truce with Hamas collapsed on Dec. 19. `Painful Operation' Brent crude oil for February settlement climbed 93 cents, or 2.4 percent, to $39.30 a barrel on London's ICE Futures Europe exchange. The contract gained 4.8 percent to $38.37 on Dec. 26. Israeli tanks and armored personnel carriers began taking up positions outside the perimeter fence of the Gaza Strip, Israel Radio said. The army refused to comment on the report. ``This will be a long, difficult and painful operation,'' Prime Minister Ehud Olmert told ministers in Jerusalem yesterday, according to Cabinet Secretary Oved Yehezkel. Oil prices soared to a then-record $78.40 a barrel in July 2006 after Israel attacked Iranian-backed Hezbollah forces in Lebanon. At the time, Iran, the fourth-largest oil producer, was facing international sanctions over its nuclear program, while pipeline attacks had also cut output in Nigeria. Gold may also benefit if any escalation of the tension in the Middle East drives investors toward a ``safe haven,'' Commodity Warrants' Hassall said. Bullion for immediate delivery rose 2.3 percent to $889.24 an ounce, having gained as much as 3.1 percent on Dec. 26. Demand, Supply New York oil futures fell 11 percent last week and have dropped 74 percent from the record $147.27 a barrel in July on signs the deepening global recession is cutting demand for fuel and energy. Oil reached a four-year low of $32.40 on Dec. 19. Investors seem focused on weak demand and the prospects for the U.S. government's rescue package for the nation, Hassall said. Daily price moves are also being exaggerated by thin, holiday-affected trading, adding to the difficulty in judging whether recent gains are anything more than a short-term rebound. ``Maybe the market is starting to look forward a little bit more,'' Hassall said. ``There is some expectation that we are going to see the physical market tighten up a little bit as a result of OPEC cuts.'' The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's oil, agreed on Dec. 17 to trim daily production targets by 2.46 million barrels next month. World oil demand will average 86.6 million barrels in the first quarter of 2009, down 0.2 percent from a year earlier, before recovering to unchanged in the second quarter, the International Energy Agency said in a Dec. 11 forecast.

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