Oil rises $2 as Middle East crisis, inflation in focus

LONDON, Jan 9 (Reuters): Oil prices rose by more than $2 on Tuesday on tensions in the Middle East and reduced Libyan output, but were yet to fully recovered from steep losses earlier this week.

Brent crude futures rose by $2, or 2.63 per cent, to $78.12 a barrel at 1312 GMT, while US West Texas Intermediate crude futures gained $2.09, or 2.95 per cent, to $72.86 a barrel.

Tensions in the Middle East and an ongoing supply outage in Libya offered support to prices on Tuesday, analysts said.

Some major shipping firms are still avoiding the Red Sea due to attacks by Yemeni Houthi militants, which have targeted vessels to show their support for Hamas in its war with Israel.

Germany's Hapag-Lloyd will continue to divert vessels around the Cape of Good Hope, it said on Tuesday.

The Israeli military has said its fight against Hamas will continue through 2024, worrying markets that the conflict could grow into a regional crisis that could disrupt Middle Eastern oil supplies.

US Secretary of State Antony Blinken told Israeli leaders there was still a chance of winning acceptance from their Arab neighbours if they create a path to a viable Palestinian state.

Brent and WTI incurred 3 per cent and 4 per cent losses respectively on Monday, following sharp cuts by top exporter Saudi Arabia to its official selling prices (OSP), prompting both supply and demand concerns.

"The question is whether the Saudi move of reducing OSPs to a 27-month low is also a sign of a potential increase in oil supply implying serious discord within OPEC+," PVM analyst Tamas Varga said.

But Saudi Arabia on Tuesday emphasised its keenness to support efforts aimed at stabilising oil markets.

Commerzbank analyst Carsten Fritsch added that the OSP cut "indicates a weakening of demand for oil in the three most important demand regions."

German industrial production unexpectedly fell in November according to the federal statistics office, marking a sixth consecutive monthly decline.

Investors are also awaiting US inventory data from the American Petroleum Institute industry group due later.

Core inflation data from the US on Thursday could also offer clues regarding country's the fight against inflation.