| GEO Business|
| Oil prices slip below 40 dollars on weak demand|
| Updated at: 0231 PST, Wednesday, December 31, 2008|
NEW YORK: Oil futures slipped below 40 dollars a barrel on Tuesday as the market focused on weak energy demand after hefty price gains a day earlier amid the Israel-Hamas conflict.
New York's main contract, light sweet crude for February, closed 99 cents lower at 39.03 dollars a barrel.
In London, Brent North Sea crude for delivery in February slipped 40 cents to settle at 40.15 dollars a barrel.
Both benchmark contracts had spiked more than two dollars Monday on the third day of escalating violence between Israel and Hamas.
Israel unleashed a massive bombardment of Hamas targets in the Gaza Strip on Saturday in response to ongoing rocket fire from the territory.
Israel on Tuesday rejected world appeals for a truce and warned its deadly assault on Gaza could last for weeks as warplanes pummeled Hamas positions for a fourth day and tanks massed on the border.
Prices had been higher because of a "political risk premium" resulting from the violence in the Gaza Strip, said Jonathan Kornafel of trading group Hudson Capital Energy.
Kornafel said, however, that underlying weak demand for energy was now weighing on crude futures.
"Despite the reaction to the violence in Israel, oil traders have to wonder whether these moves, created in part by this conflict, are sustainable over the long run," said Phil Flynn, an analyst at Alaron Trading.
The fighting has fueled fears of wider tensions in the oil-rich Middle East, while thin volumes amid the year-end holiday season also contributed to price volatility.
"It is probably not productive to search too deeply for the rationale behind market movements at this time of year because they are generally more expressive of accounting necessities than market sentiment," said Mike Fitzpatrick at MF Global.
A sharp global downturn has slashed world demand, pulling oil down from record highs above 147 dollars a barrel in July. New York crude plunged earlier this month to below 33 dollars, its lowest point for almost five years.