RPT-Brent crude rises above $110 on Mideast violence

Jessica Jaganathan
Reuters Middle East

(Repeats to add oil price codes)

* Violence continues between Palestinians and Israelis ahead

of truce talks

* U.S. Federal Reserve chief warns budget impasse is

damaging growth

* Coming Up: U.S. EIA oil inventory data; 1530 GMT

SINGAPORE, Nov 21 (Reuters) - Brent crude rose above $110

per barrel on Wednesday on fears of supply disruption from the

Middle East as clashes raged between Palestinians and Israelis

despite overnight truce talks.

But gains in prices were capped by worries over oil demand,

especially after U.S. Federal Reserve Chairman Ben Bernanke

warned that a failure to resolve a budget crisis could lead to

recession in the world's biggest crude consumer.

Fresh concerns about Europe's economy also weighed on prices

a day after Moody's stripped France of its prized triple-A

badge, citing uncertainty about the fiscal and economic outlook

of the euro zone's second-largest economy.

Brent crude futures gained 32 cents to $110.15 a

barrel by 0314 GMT, recouping some of the previous session's

losses. U.S. crude increased by 30 cents to $87.05.

"There are opposing forces where the uncertainty in Europe

and the United States meets with the bullish uncertainty in the

Middle East, ... so I think we're going to see a volatile

market," said Jeremy Friesen, commodity strategist at Societe

Generale in Hong Kong.

"We're going to see some crazy volatility in the market with

rising geopolitics and rising economic uncertainty. The Middle

East tensions could continue to give prices some life in the

near term but we suspect that the bearish economic factors will

be dominant."


Israeli air strikes shook the Gaza Strip and Palestinian

rockets struck across the border as U.S. Secretary of State

Hillary Clinton held talks in Jerusalem in the early hours of

Wednesday, seeking a truce to hold back Israel's ground troops.

Hamas, the Islamist movement controlling Gaza, and Egypt,

whose new, Islamist government is trying to broker a truce, had

floated hopes for a ceasefire by late Tuesday; but by the time

Clinton met Israeli Prime Minister Benjamin Netanyahu it was

clear there would be more argument, and more violence, first.

The violence in the Middle East adds to investors' worries

about the economic outlook for the United States.

Fed chief Bernanke said 2013 could be a "very good year" for

the U.S. economy if politicians can strike a quick deal to avoid

the so-called fiscal cliff of spending cuts and tax hikes.

Recent U.S. housing and oil inventory data, however, helped

support prices.

U.S. housing starts rose to their highest in more than four

years in October, suggesting the housing market recovery was

gaining steam.

U.S. crude oil inventory tumbled last week due to a drop in

imports, data from the American Petroleum Institute released on

Tuesday showed. Total U.S. crude stocks fell by more than 1.9

million barrels in the week to Nov. 16, after analysts polled by

Reuters had forecast a build of 900,000 barrels.

The market will now await data from the U.S. Energy

Information Administration (EIA), due at 1530 GMT on Wednesday,

for confirmation of the API report.

(Editing by Miral Fahmy)

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