LONDON: Crude oil futures slipped below $125 a barrel on 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 on Thursday after an Iranian media report of a pipeline fire in top exporter Saudi Arabia, although prices later pared back after CNBC cited a Saudi oil official saying the report was untrue.
Front-month Brent crude was down by $1.41 to $124.79 a barrel at 1201 GMT, after settling the previous session at highs not seen since April 2011 of $126.20.
Brent topped $128 a barrel in late post-settlement trade on Thursday, reaching levels not seen since July 2008, when oil reached record peaks of more than $147 a barrel.
"Most people believe the retracements to the downside are all going to be pretty limited in the short term," Tony Machacek, an energy broker at Bache Commodities.
Top oil Saudi Arabia said on Friday there had been no attack in the kingdom, but traders are jittery about any potential disruptions to the country's production or its 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.
US crude oil futures were down 87 cents to $107.97 a barrel after settling $1.77 higher at $108.84.
Markets have been on edge this year due to threats of supply disruptions caused by the West's standoff with Iran over its nuclear program and production losses from South Sudan, Yemen, Syria and the North Sea.
"The market seems to normalise slowly, very slowly at best," Commerzbank's Carsten Fritsch said. "I don't expect yesterday's price increase to be fully priced out again since there are still concerns about supply disruptions and these concerns will be even greater now."
"The market is asymmetric to information at the moment: it reacts strongly to price-supporting news and less so to negative news flow. This report shows just how nervous the market is on any news regarding supply disruptions," Fritsch added.
IRAN STRUGGLING TO SELL CRUDE
Iran, OPEC's second biggest producer, has been struggling to sell its crude in the face of tightening US sanctions and a European Union embargo that kicks in on July 1. This has threatened to tighten global crude supplies.
However, US Energy Secretary Steven Chu said global oil producers have enough spare production capacity to make up for a drop in Iranian exports.
Oil prices have also been underpinned this week by positive manufacturing data out of China, easing fears of a sharp drop in demand from the world's second biggest oil consumer, and by a flood of cheap funds from the European Central Bank.
The probability of a sharp global slowdown has eased due to recent policy measures adopted in the euro zone to tackle its debt crisis, the International Monetary Fund said on Thursday, but it warned risks to world growth remain "squarely to the downside".