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Oil prices volatile to correction as Brent hits 43 month high after Saudi explosion scare

The price of oil has taken a big swing overnight and is volatile to short term corrections as Brent oil futures hit a 43 month high following reports that a Saudi Arabian pipeline exploded, Saudi officials denied the reports, helping prices fall back from their highs in Asia on Friday.

Latest Brent Oil Price

In London, Brent crude oil futures for April 2012 delivery was trading at $125.63 a barrel, 06.15 GMT today on the ICE Futures Exchange.

The European contract closed off yesterday’s trading session at $127.08 a barrel, or a big 3.3 percent higher following the scare.

Brent crude oil prices jumped as high as $5.74 to $128.40 per barrel on Thursday, the highest since July 2008.

“The rise in prices overnight was driven by news that there was a fire in Saudi Arabia but that report has now proven to be false and prices have retreated. The market’s reaction to the news shows that the oil market is really sensitive to supply disruptions.” said Victor Shum, senior principal at Purvin and Gertz global energy consultants, Singapore.

Saudi Pipeline Story

A report in the Iranian media that an explosion had occurred at a pipeline in Saudi Arabia triggered the dramatic surge for oil futures at a time when there has been a steady increase in friction between the US, its allies and Iran.

Two reports in Middle Eastern media said an explosion hit oil pipelines in the city of Awamiyah, in the country’s Eastern province. The reports said the region is a flashpoint for tensions between religious minorities and the established government. One of the reports, in the online magazine Arab Digest, see the article here was accompanied by photographs of what it said was the pipeline fire.

“The sharp move up on the pipeline story points to the market nervousness on anything related to supply problems.” said Gene McGillan of Tradition Energy.

“There’s a substantial risk premium built into this market. The fundamentals do not warrant the price being up this high. The price should be lower. However, it’s not, and there’s some fears out there.” said Peter Donovan, an oil trader and vice president of Vantage Trading.

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