Oil up above $97 as U.S. launches air strikes in Syria

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LONDON/SINGAPORE (Sept 23): Brent crude rose above $97 a barrel on Tuesday as the United States and several Gulf Arab allies launched strikes against Islamic State strongholds in Syria, and as a surprise pick-up in China's factory activity boosted the demand outlook.

Oil fell to a two-year low last week under the weight of a supply glut and tepid demand, but prices have stabilised as pockets of strength in the world economy have emerged and as tensions have risen in the Middle East.

In China the manufacturing sector picked up some momentum in September even as factory employment slumped to a 5-1/2-year low, with the HSBC/Markit Purchasing Managers' Index (PMI) rising to 50.5 from 50.2 last month.

Brent for November delivery was up 46 cents at $97.43 a barrel by 1153 GMT, after falling more than a dollar on Monday. It hit a two-year low of $96.21 last week.

U.S. crude rose 65 cents to $91.52 a barrel, rebounding from a session low of $90.58 that was its weakest since Sept. 11.

The better-than-expected China PMI fuelled the recovery in prices, said Avtar Sandu, senior manager for commodities at Phillip Futures.

"The market was really oversold earlier and there was not much room for prices to go further down," Sandu said.

The reported shutdown of a gasoline-making unit at one of the largest refineries supplying the key New York Harbor trading hub also prompted a jump in refined product prices, with RBOB gasoline futures up more than 1 percent at $2.6153 a gallon.

Industry intelligence group Genscape said the 70,000-barrels-per-day gasoline unit at the Irving St. John refinery shut on Monday night.

U.S-led strikes

The U.S. military said air and missile strikes against the militant Sunni group Islamic State were designed to disrupt the threat of an "imminent attack" against U.S. and Western interests by "seasoned al Qaeda veterans" who had established a safe haven in Syria.

They were carried out with the support of Jordan, Bahrain, Saudi Arabia, Qatar and the United Arab Emirates, the U.S. military said. Islamic State vowed revenge, singling out Saudi Arabia, the world's largest oil exporter, for supporting the U.S.-led strikes.

At the same time Syria said Israel had shot down a warplane over the Golan Heights, confirming the first such incident in three decades.

"Given that the world's largest oil production region is in a state of crisis ... it is remarkable that oil prices are so unmoved," said David Hufton, managing director of PVM oil brokerage in London.

Keeping oil price gains in check are ample supplies created by rising U.S. shale oil output that have pushed Brent down by more than 5 percent in September, with the oil benchmark on track for a third straight monthly fall.

But Saudi Oil Minister Ali al-Naimi on Monday downplayed worries about the impact of sinking crude oil prices, which had fuelled recent speculation that the Organization of the Petroleum Exporting Countries (OPEC) could reduce oil output.

His views were echoed by United Arab Emirates oil minister Suhail bin Mohammed al-Mazroui on Tuesday who said it was premature to decide whether OPEC should lower output policy ahead of its Nov 27 meeting.

(Update 5: Tues 23/09/14 20:04:52)