Oil prices are up $6 a barrel this morning, its highest level in over two weeks, as escalating tensions with Russia heat up. The price of oil is at $121 and change and could go higher if a disruption of supply to Western countries is forthcoming. As you know, I was in the camp of oil going back above $120 before it got to $100 but the turn has been on a dime causing a huge jump in gold.

Russia is outraged about a possible deal between Washington and Poland to install a missile defense system in Eastern Europe and those concerns took center stage today. The defense system is seen as a threat by Moscow and other factors such as Storm Fay, and a weaker dollar has added a lot of pressure on oil today.

People are waking up to the fact that this is a huge deal and the continued presence of Russian troops in Georgia could keep the fire burning for higher oil prices. Last Friday I mentioned the gold stocks with some January call options and was hoping to scale into a position as oil headed back up. However, these positions “gapped” up so the entry prices are a lot higher than they were. With the sell-off in gold many traders started taking positions last week and it certainly is paying off today. Here is a look at the action:

Barrick Gold (ABX, $36.39, up $2.68). The January 35 calls (ABXAG, $5.00, up $1.40) were at $3.10 on Friday.

Goldcorp (GG, $34.98, up $2.55). The January 32.50 calls (GGAZ, $6.00, up $1.50) were going for $3.30.

Gold Fields (GFI, $9.05, up $0.39). The January 10 calls (GFIAB, $1.10, up $0.25) were trading for 88 cents.

Newmont Mining (NEM, $45.01, up $1.76). The January 45 calls (NEMAI, $4.90, up $0.90) were profiled at $3.35.

If you got into these trades last Friday or earlier this week, protect your profits. No one could have predicted the $6 jump in oil this morning but the Goldman Sachs (GS, $154.55, down $3.70) call of oil at $150 is looking like a real possibility if the tensions with Russia don’t ease.

Rick Rouse