* 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, Aug 21 (Reuters) - Oil prices rose nearly 5
percent on Thursday, the biggest gain in more than two months,
driven by rising tensions between the United States and energy
behemoth Russia.
The gains cap a rebound of more than $8 in oil prices so
far this week that have put a dramatic end to a more than 20
percent slide since mid-July, leaving analysts mixed over
whether oil's next big move is up or down.
"This is a geopolitically driven bounce," said Jim
Ritterbusch, president of Ritterbusch & Associates in Galena,
Illinois. "But it might be premature to say that we've seen the
bottom as the market's focus could revert very quickly to
demand deterioration."
U.S. crude <CLc1> gained $5.60, or 4.85 percent, to stand
at $121.16 a barrel by 1645 GMT, the biggest percentage gain
since June 6. London Brent crude <LCOc1> climbed $6.11 to
$120.47.
Oil is down sharply from the record high of $147.27 a
barrel reached July 11 -- a slide triggered by evidence of a
global slowdown in energy demand -- but it remains up about 20
percent so far this year and about sixfold since 2002.
Thursday's gains came after Russia said it would respond
with more than just a diplomatic protest to a U.S. deal with
Poland to station parts of a U.S. missile defense shield on
Polish soil.
Relations between Russia and the West had already been
strained by Moscow's military intervention in Georgia, a
conflict that has already disrupted the transit of Azeri oil
through the region.
The U.S.-Russia spat adds to a list of other 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.
Adding support to oil and other commodities markets on
Thursday was weakness in the U.S. dollar, which can raise the
purchasing power of buyers using other currencies.
Dealers were also eyeing the Organization of the Petroleum
Exporting Countries and Saudi Arabia, its top producer, for
signs they may decide to trim supply. 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.
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.
International tensions and the weak dollar outweighed a
U.S. government report issued Wednesday that showed crude
inventories rose by 9.4 million barrels, the largest weekly
increase since March 2001.
(Additional reporting by Alex Lawler in London and Seng Li
Peng in Singapore; Editing by Christian Wiessner)
