By Santosh Menon
LONDON (Reuters) - Oil fell towards $120 on Friday, a day after its biggest jump in three months as part of a wider commodities rally spurred by a slump in the U.S. dollar, and mounting tension between the United States and Russia.
U.S. light crude for October delivery fell 98 cents to $120.20 a barrel by 7:37 a.m. EDT, after surging nearly 5 percent Thursday. London Brent crude fell $1.03 to $119.13.
Thursday's rally has left analysts divided, with some calling a temporary spurt, while others, notably those at long-time oil bull Goldman Sachs, saying market fundamentals point to firm prices.
MF Global analyst Edward Meir said the $6 rise on Thursday was probably a dead cat bounce, a technical expression that denotes a brief rally in a falling market.
"At this stage of the game, we think the dead cat bounce theory has more credibility...Our negative view of the market is based on our belief that yesterday's move was way overdone," Meir said.
Prices were also weighed down by evidence of rising OPEC supplies.
Industry consultant Petrologistics said on Friday OPEC oil output is expected to rise in August by 450,000 barrels per day to 32.95 million bpd due to higher supply from Iran and Angola.
RECOVERY
However, oil has recovered around $9 from last Friday's four-month low, ending a dramatic slide of more than $35 from the record high of $147.27 a barrel hit on July 11 that was triggered by worries about slowing global demand.
Oil has been boosted by rising tension between Russia and the West over Moscow's actions in neighboring Georgia, which has once again highlighted the oil market's vulnerability to any supply disruptions.
Russia's conflict with Georgia has already disrupted the transit of Azeri oil through the region, and traders fear the situation could worsen.
Russia, the world's second-largest oil exporter, said on Thursday it would respond with more than just a diplomatic protest to a U.S. deal with Poland to station parts of a U.S. missile defense shield on Polish soil.
A steep fall in the dollar on Thursday amid worries of wider credit-related losses at some U.S. financial firms saw investors reinstating their long-commodities/short-dollar positions, driving prices across a raft of commodities higher.
The dollar limped up on Friday after suffering its biggest daily drop in five months a day before. The U.S. greenback had touched an eight-month high earlier this month.
Dealers are also beginning to weigh up possible Organization of the Petroleum Exporting Countries policy at its meeting on September 9.
(Additional reporting by Felicia Loo in Singapore; editing by James Jukwey)
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