* Israel ready for Gaza invasion, but prefers diplomacy
* Efforts to broker Mideast truce intensify
* Rising hopes U.S. "fiscal cliff" can be averted
By Matthew Robinson
NEW YORK, Nov 19 (Reuters) - Oil rose 2.5 percent on Monday
to its highest price since mid-October, fueled by supply
concerns as violence in the Middle East escalated and as
investors grew more hopeful that a U.S. budget crisis will be
Traders focused on the growing Israeli-Palestinian conflict.
Israel bombed dozens of targets in the Gaza Strip on Monday and
said that while it was prepared to step up its offensive by
sending in troops, it preferred a diplomatic solution that would
end Palestinian rocket fire.
While previous Middle East wars have led to oil embargoes
and temporary disruptions to energy supplies, analysts say it is
unlikely the confrontation will spill out into a wider conflict
in the region, which supplies a third of the world's crude.
United Nations Secretary General Ban Ki-moon was due to
arrive in Cairo on Monday to support ceasefire efforts led by
Egypt, which borders both Israel and Gaza and whose
Islamist-rooted government has been hosting leaders of Hamas.
Israeli media said a delegation from Israel had also been to
Cairo for truce talks, although a spokesman for Netanyahu's
government declined comment on the matter.
"There's no oil being lost, obviously. But it's just the
follow-on effect. No one likes confrontation anywhere near the
Gulf region," said Rob Montefusco, oil broker at Sucden
Financial in London.
Brent futures traded up $2.75 to settle at $111.70.
The session high of $112.20, was the highest since Oct. 19.
As prices advanced, Brent broke through its 50-day moving
average $111.09 a barrel after dropping below that average on
Oct. 18. The international benchmark later ticked above the
200-day moving average of $111.88 briefly.
U.S. crude oil rose $2.36 to settle at $89.28 a
barrel, off highs of 89.80 a barrel.
U.S. crude trading volume was lighter than normal, about 15
percent below the 30-day average after the settlement. Brent
volumes were about 5 percent below that average.
Financial markets also found support from expectations that
U.S. politicians will avoid a budget crisis, helping support
economic recovery in the world's biggest oil consumer. Wall
Street stocks climbed more than 1.7 percent on the optimism.
"There is a little confidence that the chatter that came out
last week between the president and congressional leaders might
be working toward an agreement," said Gene McGillian, analyst,
Tradition Energy in Stamford, Connecticut, noting that U.S.
crude also found support after breaking through technical levels
at $87.50 a barrel, which it had been testing last week.
A Reuters poll of analysts ahead of weekly U.S. inventory
data showed crude oil stockpiles were expected to have risen by
900,000 barrels in the week to Nov. 16. Gasoline inventories
were seen rising by 1.3 million barrels, while distillate
stockpiles were forecast to have dropped by 1 million barrels.