Oil prices jumped above $119 Thursday as rising antagonism between Russia and the United States underscored the possibility it could affect energy shipments from the world s second-largest oil producer. The weakening US dollar, a fall in US gasoline inventories and a possible output tightening by OPEC at its next meeting in September all helped push prices higher. By the afternoon in Europe, light, sweet crude for October delivery was up $3.84 at $119.40 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.01 overnight to settle at $115.56 a barrel. The September contract expired Wednesday after rising 45 cents to $114.98 a barrel. In London, October Brent crude rose $3.67 to $118.03 a barrel on the ICE Futures exchange. The price gains came despite a huge rise in U.S. crude inventories. But not all US fuel supplies were abundant. Gasoline inventories shrank by a larger-than-expected 6.2 million barrels to below-average levels in the week ended Aug. 15, the US Energy Department s Energy Information Administration said Wednesday. Meanwhile, distillate inventories - which include heating oil and diesel fuel - rose by less than expected, the EIA said. That was enough to offset a hefty 9.4 million barrel rise in US crude stocks last week when the average analyst forecast had been for a 1.7 million barrel increase, according to energy information provider Platts. That report had something for everyone, said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. On the one hand, the crude inventory buildup was quite strong, but the gasoline draw was also very prominent. Tensions with Russia about a deal between Washington and Poland to install a missile defense system in Eastern Europe - seen as a threat by Moscow - and the continued presence of Russia in Georgia contributed greatly to the bullish mood. JBC Energy in Vienna, Austria, said the political risk premium of oil prices had widened to more than $10 a barrel, which could be attributed at least in part to the Russian angle. Investors are also trying to anticipate the outcome of the next Organization of Petroleum Exporting Countries meeting in early September, as supply concerns could rise further if members of the cartel decide to lower their output in response to slower demand. Venezuelan Oil Minister Rafael Ramirez said he might propose an output cut at the next OPEC meeting. The market is looking to the OPEC meeting, Moore said. Before that meeting, we re going to get quite a few statements from OPEC officials expressing opinions. In the end, I don t expect a production cut, but they may push for greater adherence to output quotas. US energy consultancy Cameron Hanover noted in its daily market report that some members of the oil group were terrified of allowing Western countries to build any kind of cushion for the unexpected, because it has the potential to return prices to normal or sustainable economic levels and interfere with OPEC s ability to keep building massive foreign currency reserves. Many wanted oil prices to keep rising forever, the report said. Oil prices have rebounded after falling about $35, or nearly a quarter, from their all-time trading record $147.27 on July 11. Many investors expect that high gasoline prices and slowing economic growth in the US, Europe and Japan will undermine global energy demand. Prices were supported Thursday by a weaker dollar compared to the euro. The 15-nation euro traded was up to $1.4831, while the dollar fell to 108.31 yen. A falling greenback encourages investors to seek commodities such as oil as a hedge against inflation and a weaker dollar. The slide in the dollar has taken some of the wind out of the bear s sail in the energy complex, said The Schork Report edited by US analyst and trader Stephen Schork. In other Nymex trading, heating oil futures rose 10.06 cents to $3.2641 a gallon, while gasoline prices gained 7.72 cents to $2.9875 a gallon. Natural gas futures increased 10.5 cents to $8.182 per 1,000 cubic feet. -Associated Press writer Alex Kennedy in Singapore contributed to this report.
