Oil prices were steady above $48 a barrel on Wednesday in Asia as investors juggled tensions in the Middle East and more bad US economic news suggesting slowing crude demand.
Light, sweet crude for February delivery rose 4 cents to $48.62 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight 23 cents to settle at $48.58.
Oil prices have risen 43 per cent since reaching a five-year low of $33.87 a barrel on Dec. 19 on investor concern that the conflict between Israel and Hamas in Gaza could spread to the rest of oil-rich Middle East and affect supplies.
The 11-day Israeli air and ground offensive, which has killed about 600 people, has probably added about $10 to the price of oil, said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne.
"The recent gains have been due to a one-off issue in the Middle East," Pervan said. "Once that calms down, the market could be in for a correction back toward $40."
Equity investors have brushed off signs of a severe global economic slowdown, pinning their hopes on a second half recovery spurred by massive government spending and lower interest rates.
The Dow Jones industrial average rose 0.7 per cent Tuesday and is up 19 per cent since Nov. 20.
But dismal US economic news continued Tuesday as the National Association of Realtors said pending home sales fell to the lowest level on record in November, and the Commerce Department reported a drop in factory orders in November that was nearly twice as steep as economists had expected.
Oil traders often look to stock markets as a barometer of investor sentiment about the economy.
"Consistent negative economic data over the coming weeks from the US and elsewhere will likely be enough to water down this positive mood in the market right now," said Pervan, who expects oil to average about $40 a barrel this year.
Investors are also anticipating the weekly oil inventories report to be released Wednesday by the US Energy Department's Energy Information Administration for signs of slowing US crude demand.
The report is expected to show that oil stocks rose 1.5 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The Platts survey also projects that gasoline inventories rose 1.6 million barrels and distillates jumped 700,000 barrels last week.
In other Nymex trading, gasoline futures rose 0.47 cent to $1.19 a gallon. Heating oil gained 0.63 cent to $1.63 a gallon while natural gas for February delivery jumped 3.0 cents to $6.01 per 1,000 cubic feet.
In London, February Brent crude rose 7 cents to $50.60 a barrel on the ICE Futures exchange.