U.S. crude rises above $116 on geopolitics

By Seng Li Peng

SINGAPORE (Reuters) - Oil raced above $116 a barrel on Thursday, a third straight day of gains, on supply concerns after Russia expressed its displeasure over a U.S.-Poland defense pact.

U.S. crude futures gained 80 cents to $116.36 a barrel by 0709 GMT, while London Brent crude climbed 65 cents to $115.01.

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

"I am more bullish than bearish. I think the market has too quickly discounted geopolitical risks and was too concerned with demand destruction. We should be trending back towards $120-$125 a barrel," said Jonathan Barratt of Commodity Broking Services in Australia, referring to global security threats in Nigeria, Iran, Georgia, and now Russia and the United States.

The United States and Poland signed a deal on Wednesday to station parts of a U.S. missile defense shield in Poland, but Russia, the world's second-largest oil producer, views this as a threat to its own security.

Some Russian politicians and generals have even said Poland must be prepared for a preventive attack on the site in the future.

The pact comes at a time when relations between Russia and the United States have soured following Moscow's military intervention in Georgia.

International tensions took precedence over the biggest weekly increase in U.S. crude inventories, which reversed earlier crude losses during intraday trading on Wednesday.

Crude stockpiles rose 9.4 million barrels to 305.9 million barrels, far surpassing expectations of a 800,000-barrel build-up.

"We see the big picture of demand destruction in the U.S., but there is also a lot of bullish news that is driving the market," said Clarence Chu of Hudson Capital Energy.

He cited factors such as Iran's attempts to obtain nuclear arms under cover of a civilian program and the bad weather season in the United States.

"There are still tropical storms forming in the Atlantic and the hurricane season will last until November," Chu said.

(Editing by Ben Tan)