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Oil rises to near $115 on U.S.-Russia missile spat

NEW YORK (Reuters) - Oil prices rose to near $115 a barrel on Wednesday after Russia responded angrily to a U.S. missile shield agreement with Poland, raising the threat of a supply disruption from the huge energy producer.

An Indian worker lifts a petrol nozzle in New Delhi September 1, 2005. State-run Indian Oil Corp. wants the government to increase retail petrol prices by 7.50 rupees ($0.17) a litre and diesel rates by 5.5 rupees a litre to match the surge in global crude oil rates, Chairman S.V. Behuria said on Thursday. REUTERS/Adnan Abidi VM/SA

The gains were encouraged by a report earlier in the day from Goldman Sachs, the biggest investment bank in the commodities market, reasserting a forecast that oil prices could hit a record $149 a barrel by the end of the year as

supply struggles to meet rising demand in Asia.

U.S. crude futures rose 45 cents to settle at $114.98 a barrel while London Brent rose $1.11 to $114.36 a barrel.

The jump in oil prices reversed losses earlier in the day that had been triggered by a U.S. government report showing the biggest weekly increase in the crude inventories in the world’s largest energy consumer since 2001, thanks to a rebound in imports delayed by Tropical Storm Edouard.

“The news of Russia’s potential response to the US-Poland missile shield is causing crude to recover from earlier losses here,” a New York-based crude broker said.

Russia, the world’s second largest oil producer, said on Wednesday it would respond with more than just a diplomatic protest to a deal between Poland and the United States to base part of a U.S. missile defense system on Polish soil.

The statement described the missile shield as “one of the instruments in an extremely dangerous bundle of American military projects involving the one-sided development of a global missile shield system”.

The diplomatic spat with Russia added to global tensions that have underpinned high energy prices in recent months, including a nuclear dispute between Iran and the West and militant attacks on oil infrastructure in Nigeria.

The oil market had already been set on edge over Russia’s military operations in Georgia, which raised the threat of disruptions to pipelines through the region.

“Geopolitical risks ranging from Russia to Iran continue to remind the market that major supply sources remain in very hot spots of the globe,” said Chris Jarvis, president and senior analyst at Caprock Risk Management.

Oil prices are down more than 20 percent from peaks hit in mid-July amid concern over slowing global demand, but they remain up about 15 percent this year in a multiyear rally propelled by Asian economic growth.

Additional reporting by Ikuko Kao and Alex Lawler in London and Seng Li Peng in Singapore