Aug 22. In global petroleum market headlines, oil prices spiked more than USD 5 yesterday as investors mulled the likelihood that tension with Russia would further disrupt crude supplies to the West. Light, sweet crude for October delivery was up 17 cents at USD 121.35 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract rose USD 5.62 overnight to settle at USD 121.18 a barrel. In London, October Brent crude rose 24 cents to USD 120.40 a barrel. In our view, the market is now engaged in speculation as to whether Russia will use oil as a weapon to punish the West and yesterday it zeroed in on that geopolitical threat. The United States and Poland signed a deal Wednesday to place a U.S. missile defense base just 115 miles (180 kilometers) from Russia's westernmost border — a move quickly denounced by Moscow. Russia's Foreign Ministry warned that Moscow's response to further development of the missile defense shield would go beyond diplomacy. U.S. Secretary of State Condoleezza Rice has dismissed any suggestion that the missile defense interceptors to be based in Poland constitute a threat to Russia. Washington says the base is a way to defend the U.S. and Europe from the possible threat of long-distance missiles from Iran. Russian forces also lingered deep in Georgia on Thursday, digging trenches and setting up mortars a day before Kremlin officials promised to complete a troop withdrawal from the former Soviet republic. A top Russian general said it could be 10 days before the bulk of its troops left. Western leaders remained adamant that Russia remove its troops and do it quickly. U.S. Senator Joe Lieberman said Thursday he wants to see Russia kicked out of the Group of Eight "for a while" and denied entry into the World Trade Organization as punishment for its actions in Georgia. London-based BP PLC last week shut down its Baku-Supsa oil pipeline — which runs through the center of Georgia from Baku in Azerbaijan to Supsa on Georgia's Black Sea coast — because of security concerns. The line, which has the capacity to pump up to 150,000 bpd, had recently been pumping around 90,000 bpd. The British oil company also said that testing was to begin Wednesday on the closed Baku-Tbilisi-Ceyhan oil pipeline — which runs through Georgia as well — ahead of a move to restart full operations as early as next week. That line, owned by a consortium of energy companies led by BP, has been closed for more than two weeks after a fire on its Turkish stretch. Kurdish rebels have taken responsibility for that blaze. Moving forward, we can see that the bulls are back in the driver’s seat with geopolitical factors surging to the forefront and oil retracing to recent highs. That said, we see a pronounced risk to the downside if the conflict is settled within the next week or so. We believe this could cause prices to pull back around the end of next week, or whenever the planned pullout is complete, unless other drivers arise in the meantime.