Oil rises 5 pct on global tensions, soft dollar
Reuters* Oil rises 5 pct, biggest gain since early June
* Dealers focus on geopolitical tensions and weak dollar
* US EIA says Saudi Arabia could trim oil supply
(Updates prices, details)
By Richard Valdmanis
NEW YORK (Reuters) - Oil prices rose nearly 5percent Thursday, the biggest gain in more than two months,driven by rising tensions between the United States and energybehemoth Russia.
The gains cap a rebound of more than $8 in oil prices sofar this week that have put a dramatic end to a more than 20percent slide since mid-July, leaving analysts mixed overwhether oil's next big move is up or down.
"This is a geopolitically driven bounce," said JimRitterbusch, president of Ritterbusch & Associates in Galena,Illinois. "But it might be premature to say that we've seen thebottom as the market's focus could revert very quickly todemand deterioration."
U.S. crude gained $5.60, or 4.85 percent, to standat $121.16 a barrel by 1645 GMT, the biggest percentage gainsince June 6. London Brent crude climbed $6.11 to$120.47.
Oil is down sharply from the record high of $147.27 abarrel reached July 11 -- a slide triggered by evidence of aglobal slowdown in energy demand -- but it remains up about 20percent so far this year and about sixfold since 2002.
Thursday's gains came after Russia said it would respondwith more than just a diplomatic protest to a U.S. deal withPoland to station parts of a U.S. missile defense shield onPolish soil.
Relations between Russia and the West had already beenstrained by Moscow's military intervention in Georgia, aconflict that has already disrupted the transit of Azeri oilthrough the region.
The U.S.-Russia spat adds to a list of other politicalfactors that have supported oil prices in recent months, suchas the dispute over Iran's nuclear program and repeatedmilitant attacks on oil facilities in Nigeria.
Adding support to oil and other commodities markets onThursday was weakness in the U.S. dollar, which can raise thepurchasing power of buyers using other currencies.
Dealers were also eyeing the Organization of the PetroleumExporting Countries and Saudi Arabia, its top producer, forsigns they may decide to trim supply. OPEC meets Sept. 9 toreview output policy.
"As prices drop, Saudi Arabia may cut back on its recentincrease in production, which could halt the most recent pricedecline," the U.S. Energy Information Administration said inits weekly review of the market.
Also supporting the market was concern that Tropical StormFay might re-enter the Gulf of Mexico over the weekend,affecting oil refineries and offshore platforms.
International tensions and the weak dollar outweighed aU.S. government report issued Wednesday that showed crudeinventories rose by 9.4 million barrels, the largest weeklyincrease since March 2001. (Additional reporting by Alex Lawler in London and Seng LiPeng in Singapore; Editing by Christian Wiessner)