Page last updated at 21:35 GMT, Thursday, 21 August 2008 22:35 UK

Supply concerns send oil surging

oil pipeline
Oil prices have risen in recent days

Oil prices passed $122 a barrel on geopolitical worries after a missile shield deal between Poland and the US.

The US has sealed an agreement to station parts of its missile defence shield on Polish territory, to the annoyance of key oil exporter Russia.

US light crude later settled up $5.62 at $121.18 a barrel, while London Brent crude saw similar gains to $120.16.

Russia's links with the West have been under strain after its recent military intervention in Georgia.

"There's a myriad of geopolitical factors rumbling in the background - Russia, Iran," said Tony Machacek of Bache Commodities, alluding to the continuing dispute over Iran's nuclear plans.

"Also the dollar is weaker," he added.

When the dollar weakens investors tend to place their money in commodities, including oil and metals, because they are seen as a safe alternative.

In addition when the greenback falls in value it makes commodities relatively cheaper to buy.

Latest tensions

The recent conflict between Russia and Georgia dented oil supplies, with BP saying exports of Azeri oil by rail to Georgia had stopped after a railway line was damaged.

And the latest tensions between Poland and Russian seemed to weigh more on the market than figures on Wednesday showing that US stocks of oil increased by 9.4 million barrels - the largest weekly increase since March 2001.

Another factor pushing up prices was speculation that oil producer cartel Opec might reduce supply in an attempt to prevent prices from falling.

While prices have risen lately, they are still far off the record of more than $147 a barrel which was hit in July.

Many analysts expect that slowing US demand will push prices lower.

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