by STEVENSON JACOBS

NEW YORK (AP) — Oil prices shot up more than $5 a bar­rel Thurs­day, ris­ing to the high­est level in over two weeks as esca­lat­ing ten­sions with Rus­sia stoked fears of sup­ply dis­rup­tions to the West.

Crude’s rally mim­ic­ked the wild price swings seen last month and have at least tem­porar­ily halted oil’s slide back toward $100 a bar­rel. A weaker U.S. dol­lar and wor­ries about tight­en­ing out­put from OPEC coun­tries are also sup­port­ing prices.

After days of brush­ing off geopo­lit­i­cal flare-ups and a trop­i­cal storm, oil spiked above $122 a bar­rel as traders became rat­tled over increas­ingly hos­tile Russ­ian rhetoric toward a U.S.-Poland deal to install a mis­sile defense sys­tem in East­ern Europe — a move Moscow views as a threat.

The con­tin­ued pres­ence of Russ­ian troops in Geor­gia — a key con­duit for Western-bound oil ship­ments — injected even more bull­ish sen­ti­ment into a mar­ket that had appeared to be los­ing momen­tum on the idea that high energy prices were curb­ing demand.

Oil watch­ers said the market’s sud­den reac­tion to the stand­off reflects a grow­ing acknowl­edg­ment of Russia’s bear-like influ­ence over world energy supplies.

“Peo­ple are finally real­iz­ing that this Russ­ian sit­u­a­tion has the poten­tial to be bad for a very long time,” said Addi­son Arm­strong, direc­tor of mar­ket research at Tra­di­tion Energy in Stam­ford, Conn. “The Rus­sians have shown evi­dence that they’re will­ing to cut off energy sup­plies to advance their aims. There is con­cern that they are now going to be much more assertive in that area.”

Light, sweet crude for Octo­ber deliv­ery jumped $5.62 to set­tle at $121.18 a bar­rel on the New York Mer­can­tile Exchange after ear­lier ris­ing as high as $122.04, crude’s high­est trad­ing level since Aug. 4. Crude prices have set­tled higher for three straight sessions.

Rus­sia is the world’s sec­ond largest oil exporter after Saudi Ara­bia. It sup­plies a quar­ter of the Euro­pean Union’s oil and half of its nat­ural gas. If those ship­ments were cut off, EU coun­tries would be forced to seek sup­plies else­where at a time when spare crude capac­ity is already stretched to an extremely thin mar­gin of about 2 mil­lion bar­rels per day, ana­lysts say.

“If mil­i­tary activ­ity heats up again, pipeline flows into Europe could be dis­rupted and that would affect the United States as well,” said Jim Rit­ter­busch, pres­i­dent of energy con­sul­tancy Rit­ter­busch and Asso­ciates in Galena, Ill.

The price jump came as retail gas prices con­tin­ued to fall, shed­ding more than a penny overnight to a new national aver­age of $3.702, accord­ing to auto club AAA, the Oil Price Infor­ma­tion Ser­vice and Wright Express. Prices have now fallen 10 per­cent from record highs above $4 a gal­lon set July 17, but the pace of the drop off could slow if oil holds onto Thursday’s gains.

“This is prob­a­bly about it in terms of a retail gas drop. We may be a few cents away from the August bot­tom,” said Tom Kloza, pub­lisher and chief ana­lyst at the Oil Price Infor­ma­tion Ser­vice in Wall, N.J.

Prices were sup­ported Thurs­day by a weaker dol­lar com­pared to the euro. The 15-nation cur­rency rose to $1.4874 in after­noon trad­ing in New York from $1.4768 late Wednes­day. 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,” oil ana­lyst and trader Stephen Schork said in a note.

Oil’s rise came despite a huge increase in U.S. crude inven­to­ries reported Wednes­day. But other sup­plies were less abundant.

Gaso­line inven­to­ries shrank by a larger-than-expected 6.2 mil­lion bar­rels to below-average lev­els in the week ended Aug. 15, the U.S. 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 U.S. crude stocks last week when the aver­age ana­lyst fore­cast had been for a 1.7 mil­lion bar­rel increase, accord­ing to energy infor­ma­tion provider Platts.

But grow­ing con­cerns over Russia’s stand­off with Geor­gia and NATO grabbed the atten­tion of most oil traders Thursday.

On Wednes­day, Sec­re­tary of State Con­doleezza Rice and her Pol­ish coun­ter­part signed a deal to build an Amer­i­can mis­sile defense base in Poland. Last week, a top Russ­ian gen­eral warned Poland was risk­ing an attack, pos­si­bly a nuclear one, by devel­op­ing the base.

JBC Energy in Vienna 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 anx­ious about the next Orga­ni­za­tion of the Petro­leum Export­ing Coun­tries meet­ing in early Sep­tem­ber. Venezue­lan Oil Min­is­ter Rafael Ramirez said he might pro­pose an out­put cut at the next OPEC meeting.

U.S. 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.

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 U.S., Europe and Japan will under­mine global energy demand.

In other Nymex trad­ing, heat­ing oil futures rose 13.71 cents to set­tle at $3.3006 a gal­lon, while gaso­line prices gained 13.49 cents to set­tle at $3.0452 a gal­lon. Nat­ural gas futures increased 17.5 cents to set­tle at $8.252 per 1,000 cubic feet.

In Lon­don, Octo­ber Brent crude rose $5.83 to $120.19 a barrel.