Oil drops below $108; Saudi explosion report denied
Oil prices retreated to below $108 a barrel Friday after Saudi Arabia denied an Iranian media report of a Saudi pipeline explosion.
By early afternoon in Europe, benchmark oil for April delivery was down 98 cents to $107.86 in electronic trading on the New York Mercantile Exchange. The contract rose $1.77 to $108.84 per barrel in New York on Thursday.
In London, Brent crude was down $1.46 to $124.74 a barrel on the ICE Futures exchange.
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.
Oil prices have risen from $96 last month amid fears that conflict over Iran's nuclear program could trigger a disruption in global crude supplies. The U.S. and Europe are imposing sanctions on Iran while the Middle Eastern country has threatened to cut supplies to some countries and halt oil tankers passing through the Persian Gulf's Straits of Hormuz.
Israel said Thursday it plans to soon test-fire a new ballistic interceptor missile. Israeli Prime Minister Benjamin Netanyahu is scheduled to meet with U.S. President Barack Obama on Monday to discuss Iran.
"The Iran crisis has led to a sharp rise in the oil price since the beginning of the year," said a report from Commerzbank in Frankfurt. "Concerns about supply disruptions are likely to persist for some time, justifying a longer lasting risk premium on the oil price."
Signs of an improving U.S. economy have also bolstered investor optimism and crude prices. The government said Thursday that applications for unemployment benefits hit a four-year low while spending on residential construction rose and major retailers reported stronger-than-expected sales for February.
"Investors were buying on Iran fears and on general expectations for a stronger economy," energy consultant Cameron Hanover said in a report. However, "it's hard for the economy to grow with gasoline and oil prices as high as they are."
Some analysts are more optimistic that the U.S. economy can continue improving despite higher fuel costs. U.S. retail gasoline prices rose to an average of $3.74 per gallon this week, 31 cents higher than a month ago.
"Just like we have managed to recover the past few years with gasoline well above $3, we'll make our way above $4 and even $5," Carl Larry of Oil Opinions and Outlooks said.
In other energy trading, heating oil fell 3.16 cents to $3.2437 per gallon and gasoline futures were down 4.26 cents at $3.3091 per gallon. Natural gas rose 2 cents at $2.483 per 1,000 cubic feet.