Brent crude futures slipped below $125 on Friday after surging five per cent 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 the next few weeks.
Oil prices soared yesterday after an Iranian media report of a pipeline fire in top exporter Saudi Arabia though prices later pared back after CNBC cited a Saudi oil official saying the report was untrue.
Front-month Brent was down by $1.22 to $124.98 a barrel at 0917 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 the growing economic crisis drove oil to record peaks of more than $147 a barrel.
“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.”
Markets have been on edge this year due to threats of supply disruptions caused by the West’s standoff with Iran over its nuclear programme and production losses from South Sudan, Yemen, Syria and the North Sea.
“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.
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US crude oil futures were down 72 cents to $108.12 a barrel after settling $1.77 higher at $108.84.
But barring an escalation in the standoff with Iran, analysts said warmer weather in Europe and Asia following the end of winter would weigh on prices in the next few weeks.
“Oil prices have overshot in the short-term, and with warmer temperatures as we move from winter to spring, oil demand could start to fall, starting in March,” said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.