Crude oil futures slipped below $125 a barrel Friday, after surging 5 percent to an 11-month high a day earlier, as fears of a supply disruption from Saudi Arabia eased, calming investors who now expect oil demand to fall in coming weeks. Oil prices soared Thursday after an Iranian media report of a pipeline fire in top exporter Saudi Arabia, although prices later dipped back after CNBC cited a Saudi oil official saying the report was untrue. Oil prices fell below $107 a barrel Friday after Saudi Arabia denied an Iranian media report of a Saudi pipeline explosion. A stronger dollar and some profit-taking after the previous day's rally were contributing factors. Benchmark West Texas Intermediate crude for April delivery, which is used to price much of the oil produced in the US Midwest, fell by $2.80, or 2.6 percent, to $106.04 per barrel in afternoon trading on the New York Mercantile Exchange. Brent crude, imported by many US refineries that make gasoline, fell by $2.65 to $123.55 a barrel in London. Crude jumped to $110.55 late Thursday after an unconfirmed Iranian media report of a pipeline explosion in Saudi Arabia. Saudi officials denied the report. "Most people believe the retracements to the downside are all going to be pretty limited in the short term," said Tony Machacek, an energy broker at Bache Commodities. Saudi Arabia said Friday there had been no attack in the Kingdom, but traders are jittery about any potential disruptions to its production or infrastructure at a time of setbacks to global supplies. "The general belief is that the market is going to remain relatively tight and relatively well supported: the underlying long term fundamentals remain good on demand from China and India. Throw into the mix a bit of geopolitical tension, and obviously Iran, and that's enough to keep people not wanting to go short into the weekend," Machacek said. Markets have been on edge this year due to threats of supply disruptions from the West's standoff with Iran over its nuclear program and production losses from South Sudan, Yemen, Syria and the North Sea. "Even after the return of a tranche of Libyan output, the system is still highly exposed to relatively minor variations in output elsewhere," Barclays Capital analysts said in a note. "Combine that lack of inventory cover with an upstream system that is running rather hot at more than 98 percent of sustainable capacity, and the result is that supply-side fluctuations are felt faster and have larger impacts on physical differentials." US Energy Secretary Steven Chu said global oil producers have enough spare production capacity to make up for a drop in Iranian exports.
