Crude oil prices have climbed sharply this morning, after soaring overnight in their biggest rally for three months, as tensions between the West and Russia escalated.

Brent crude futures rose by $6 dollar to $120.36, while New York's main oil futures contract, light sweet crude for delivery in October, was up 46 cents at $121.64 per barrel.

The rally has revived concerns about inflation in Europe, leading the market to scale back expectations of when the European Central Bank might start cutting rates.

Fresh political tensions between Russia and the US are fuelling the rally, after Russia said yesterday that it would respond with more than just a diplomatic protest to a US deal with Poland to station parts of a US missile defence shield in Poland.

There are also concerns about when Russia would pull all its troops out of Georgia, which it invaded earlier this month.

Jason Feer, of energy market analysts Argus Media in Singapore, said: “The markets had sort of assumed that this would all be over reasonably soon.”

In the UK, wholesale gas prices were pushed higher by the rally in oil, although the main influence was continued worries about the winter supply outlook, following the shutdown of a Norwegian pipeline providing supplies to Britain.

“We saw a sharp rebound in oil prices, due to geopolitical worries and that has injected some renewed worries about inflation,” said Nick Stamenkovic, bond strategist at RIA Capital Markets.

Oil prices had also closed higher on Wednesday after the US Department of Energy reported that US gasoline reserves slumped 6.2 million barrels last week, compared with market expectations for a drop of 2.4 million barrels.

The US is in the middle of the holiday driving season when motorists typically push up demand for fuel and gasoline stocks are closely watched at this time of year.

Despite its recent gains, crude oil is down significantly from record highs above $147 per barrel in July.

Venezuela, a member of the Organisation of the Petroleum Exporting Countries, has said it would ask the cartel at its September meeting to cut production if prices continued to fall.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive