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Oil prices fall in Asia after Monday rally

Posted at | Updated as of 01/06/09 7:12 PM

SINGAPORE - World oil prices fell in Asian trade on Tuesday after rising sharply the previous day amid an intensification of Israel's conflict with Hamas, analysts said.

New York's main contract, light sweet crude for February delivery, was down 16 cents to $48.65 a barrel, after rising $2.47 to $48.81 a barrel at the close of trading Monday on the New York Mercantile Exchange.

Brent North Sea crude for February delivery fell $0.32 to $49.30 a barrel after closing $2.71 higher at $49.62 on Monday in London.

Israeli troops invaded the Gaza Strip on Saturday after an eight-day bombing operation, in a bid to halt rocket fire from the militant group Hamas.

At least 555 people have been killed in Gaza since December 27, according to doctors, and another 2,700 wounded, while four Israeli soldiers have died in the fighting since Saturday. Another four Israelis were killed in Hamas rocket attacks on Israel before the ground war began.

But dealers said they did not expect prices to continue their rally despite the conflict in the oil-rich Middle East.

"Even though the short-term geopolitical issues of Gaza are keeping the strength in oil, continuing poor economic sentiment will put a lid on prices," said Victor Shum, a senior analyst at international energy consultants Purvin and Gertz in Singapore.

Mike Fitzpatrick at MF Global said the conflict was a factor but was probably not significant enough in isolation to sustain a rally in oil prices.

Oil prices soared in the first half of last year, reaching record highs above $147 a barrel in July, before a sharp global economic downturn slashed world demand for energy and pulled prices sharply lower.

The New York contract ended the year at $44.60 while Brent finished at $45.59 a barrel.

Shum said the fundamentals of the market remain unchanged and prices would only improve if there is "clear evidence of output cuts... (and) the health of the economy improves."

The Organisation of the Petroleum Exporting Countries (OPEC), whose 12 members together produce about 40 percent of world oil, last month agreed to cut output by 2.2 million barrels per day in a bid to shore up crude prices.

Iran's OPEC representative, Mohammad Ali Khatibi, said on Monday that the organisation would hold an extraordinary meeting in Kuwait next month, the state television website reported.

But he added the exact date has not been fixed yet and no invitation has been sent to OPEC members.