OIL prices shot up more than US$5 a barrel yesterday, rising to the highest level in over two weeks as escalating tensions with Russia stoked fears of supply disruptions to the West.
Crude's rally mimicked the wild price swings seen last month and have at least temporarily halted oil's slide back toward US$100 a barrel. A weaker US dollar and worries about tightening output from OPEC countries are also supporting prices.
After days of brushing off geopolitical flare-ups and a tropical storm, oil spiked above US$122 a barrel as traders became rattled over increasingly hostile Russian rhetoric toward a US-Poland deal to install a missile defense system in Eastern Europe, a move Moscow views as a threat.
Light, sweet crude for October delivery jumped US$5.62 to settle at US$121.18 a barrel on the New York Mercantile Exchange after earlier rising as high as US$122.04, crude's highest trading level since August 4. Crude prices have settled higher for three straight sessions.
In London, October Brent crude rose US$5.80 to settle at US$120.16 a barrel.
Russia is the world's second largest oil exporter after Saudi Arabia. It supplies a quarter of the European Union's oil and half of its natural gas. If those shipments were cut off, EU countries would be forced to seek supplies elsewhere at a time when spare crude capacity is already stretched to an extremely thin margin of about 2 million barrels per day, analysts say.
"If military activity heats up again, pipeline flows into Europe could be disrupted and that would affect the United States as well," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.