Oil prices drop as weak demand offsets supply risks

Crude oil prices dropped on Friday as a backdrop of weak energy demand offset potential supply risks caused by geopolitical tensions in the Middle East fuelled by Israeli air strikes in the Gaza Strip. New York's main contract, light sweet crude for delivery in December fell 36 cents to $85.09 a barrel. Brent North Sea crude for January delivery dropped 18 cents to $107.83 in London midday deals. "Crude prices are consolidating across the board as we close the week today, torn between the weak macro picture and supply risk premium from the Israeli/ Gaza tensions," said Jack Pollard, analyst at Sucden brokerage. "Seemingly... any sustained rally in prices is likely to be capped by its downside impact on demand whilst economic growth remains as is." Prices were lower heading into the weekend after a mid-week bounce on the back of Middle East violence. Egypt's premier on Friday vowed to intensify Cairo's efforts to secure a truce and urged world leaders to end Israel's "aggression" in Gaza, as he visited the Hamas-run enclave. Prime Minister Hisham Qandil's comments came as Israeli officials said the Jewish state was considering launching its first ground offensive in four years into the Gaza Strip and the army started calling up 16,000 reservists. The bloodshed began on Wednesday when Israel killed top Hamas military chief Ahmed Jaabari in an air strike on a car in Gaza City. So far 20 Palestinians have been killed while three Israelis have died in rocket fire. Oil prices fell at the start of the week as the International Energy Agency cut its global crude demand forecasts, while sentiment has been also hit by worries over the looming US "fiscal cliff" and the ongoing eurozone debt crisis. US President Barack Obama was on Friday to attempt to avert a looming "fiscal cliff" of automatic taxation hikes and spending cuts in the world's biggest economy. If the "fiscal cliff" package of measures comes in as planned on January 1, the United States, which is also the world's biggest oil consuming nation, will likely tip back into recession, which would have a devastating effect globally.