Oil prices jumped back above 122 dollars on Thursday as traders tracked geopolitical tensions between the United States and Russia, a weak dollar and a large drop in US motor fuel reserves.
New York's main contract, light sweet crude for delivery in October, soared more than six dollars to 122.02 dollars per barrel, levels last seen on August 4.
At the same time, London's Brent North Sea crude for October delivery rallied a similar amount to a two-week high of 120.86 dollars, .
"Prices have climbed ... on renewed geopolitical tensions between the US and Russia, with the latter voicing its displeasure over a US-Poland defence pact whereby the US can station defence shield (missiles) in Poland, much to Russia’s dislike," said Barclays Capital analysts.
Russia strongly opposes Washington's plans to place elements of a missile defence system in Poland and the Czech Republic, charging that it poses a risk to its own security rather than offering protection against "rogue states" such as Iran.
"Crude futures were higher (on Thursday), extending gains from yesterday on weakness in the dollar and persistent geopolitical fears," said Sucden analyst Andrey Kryuchenkov.
He added: "The latest diplomatic stand off with Russia over Georgia ... has once again reminded investors of the market's sensitivity to all kinds of geopolitical risks.
"These also include persistent tensions in the Middle East and violence in Nigeria."
The weakening US currency, meanwhile, encourages demand for dollar-priced crude oil which becomes cheaper for investors holding stronger currencies.
Prices had closed higher on Wednesday after the US Department of Energy said that US gasoline (petrol) reserves slumped 6.2 million barrels last week, compared with market expectations for a drop of only 2.4 million barrels.
Gasoline stocks are closely watched at this time of year as American motorists are on the highways for their summer vacations, typically pushing up demand for motor fuel.
Oil prices had closed up by more than one dollar on Tuesday after OPEC member Venezuela said it would ask the cartel at its September meeting to cut production if downward price pressure continued.
Despite recent gains, world oil prices have tumbled sharply from record highs above 147 dollars set in July as weak economic growth dents global demand for energy.
Oil fell close to 110 dollars on Tuesday but prices, which broke through the 100-dollar level at the start of 2008, remain well above year-ago levels.
Traders said interest was rising about what position the Organization of the Petroleum Exporting Countries (OPEC) would take at its September meeting. OPEC, which is steered by Saudi Arabia, produces about 40 percent of the world's crude.