Oil prices fell 2 percent on Friday after Saudi Arabia eased investor concerns about a reported pipeline explosion that had pushed Brent to the highest level since 2008. Both Brent and US crude retreated and ended with weekly losses after Brent futures jumped above $128 a barrel to levels last seen in July 2008 in post-settlement trade on Thursday, reacting to an Iranian media report of a pipeline fire in Saudi Arabia.
The surge in prices Thursday was short-lived and Saudi Arabia said on Friday that there had been no attack in the kingdom. "There were no acts of sabotage in the kingdom yesterday," Interior Ministry spokesman Mansour al-Turki told Reuters. He did not elaborate.
Brent April crude fell $2.55 to settle at $123.65 a barrel, having traded as low as $123.12, testing below its 10-day moving average of $123.22. Brent fell 2 percent for the week after five straight weekly gains. US April crude fell $2.14 to settle at $106.70 a barrel, dropping as low as $105.80 and pushing below the 10-day moving average of $107.04 after reaching $110.55 during the previous day's surge.
For the week, US crude fell 2.8 percent, snapping a string of three higher weekly finishes. Brent's premium to US crude narrowed, ending at $16.95 a barrel based on settlements. Total Brent crude trading volume edged 1 percent above the 30-day average, while US turnover was 14 percent under its 30-day average with two hours of post-settlement trading remaining. "Although the oil complex is responding to some softening in the euro and the equities ... the main source of selling has been a disgorgement of risk premium following yesterday's frenzied price advance (on) reports of Saudi pipeline explosions," Jim Ritterbusch, president at Ritterbusch & Associates, said in a research note.
The dollar index strengthened as the euro slipped against the US currency, putting pressure on oil and dollar-denominated copper. The fear premium associated with tensions over Iran's nuclear program and a possible military response by Israel has kept oil prices elevated, along with production losses from South Sudan, Yemen, Syria and the North Sea.
Positive manufacturing data out of China, signs of improved economic growth in the United States and a liquidity infusion by the European Central Bank lent support to oil this week. Iran, Opec's second biggest producer, has struggled to sell its crude in the face of tightening US sanctions and a European Union embargo that kicks in on July 1.
Iranians voted on Friday in a parliamentary election likely to reinforce Supreme Leader Ayatollah Ali Khamenei's power over rival hard-liners led by President Mahmoud Ahmadinejad. US President Barack Obama and Israeli Prime Minister Benjamin Netanyahu are set to meet Monday in Washington as US-led international sanctions begin to take a toll on Iran. Netanyahu on Friday dismissed the idea of renewed international negotiations with Iran.
Some Japanese refiners are set to demand a force majeure clause when they start negotiations for term contracts to avoid difficulties if they are unable to pay Iran or lift Iranian oil due to lack of insurance cover for tankers under European Union sanctions, industry sources said. India's largest shipping company was forced to cancel an Iranian crude oil shipment last month because its European insurers refused to provide coverage for the vessel, industry sources said.
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