* 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 throughout, changes dateline from
LONDON)
By Richard Valdmanis
NEW YORK, Aug 21 (Reuters) - Oil prices rose 5 percent on
Thursday, the biggest gain in more than two months, amid rising
global tensions and a weak U.S. dollar.
U.S. crude <CLc1> gained $6.00, or 5.19 percent, to $121.56
a barrel by 1500 GMT, the biggest percentage gain since June 6.
London Brent crude <LCOc1> climbed $6.11 to $120.47.
"There's a myriad of geopolitical factors rumbling in the
background -- Russia, Iran," said Tony Machacek, broker at
Bache Commodities Ltd. "Also, the dollar is weaker."
The United States and Poland signed a deal on Wednesday to
station parts of a U.S. missile defense shield on Polish soil,
drawing a sharp response from Russia, the world's second-largest
oil exporter.
The pact comes as relations between Russia and the West
have been strained by Moscow's military intervention in
Georgia. The conflict there has disrupted the transit of Azeri
oil through Georgia.
The spat adds to political factors that have supported oil
prices in recent months, such as the dispute over Iran's
nuclear program and repeated militant attacks on oil facilities
in Nigeria.
International tension outweighed a U.S. government report
that Wednesday showed crude inventories rose by 9.4 million
barrels, the largest weekly increase since March 2001.
Oil has fallen from a record high of $147.27 a barrel
reached last month on evidence that demand is slowing, but
prices remain up about 20 percent so far this year and have
climbed from below $20 in early 2002.
Also supporting the market was concern that Tropical Storm
Fay might re-enter the Gulf of Mexico over the weekend,
affecting oil refineries and offshore platforms.
Dealers were also concerned that the Organization of the
Petroleum Exporting Countries and Saudi Arabia, its top
producer, may decide to trim supply in a bid to stem a further
price fall.
Saudi Arabia boosted oil output in July to 9.7 million
barrels a day from 9.45 million bpd in June, far above the
country's informal OPEC target. OPEC meets on Sept. 9 to review
output policy.
"As prices drop, Saudi Arabia may cut back on its recent
increase in production, which could halt the most recent price
decline," the U.S. Energy Information Administration said in
its weekly review of the market.
(Additional reporting by Alex Lawler in London, Seng Li Peng in
Singapore, editing by Matthew Lewis)
