Oil Is Poised for Weekly Decline After Saudi Denial of Pipeline Explosion

Futures slid as much as 0.9 percent after climbing to the highest price in 10 months yesterday. There was no sabotage at oil facilities in the Qatif area, according to Major General Mansour Al-Turki, a spokesman for the Saudi Arabian Interior Ministry. Prices rose above $110 a barrel for the first time since May after Iran’s Press TV said an explosion hit pipelines in the area, home to Saudi Arabia’s largest refinery.

“The report of the pipeline fire seems to have been a very successful scam by the Iranians,” said Filip Petersson, commodity strategist at SEB AB in Stockholm. “They want higher oil prices to compensate for lost export barrels and are obviously using various means to achieve it. The success clearly shows how nervous the market is.”

Oil for April delivery dropped as much as 96 cents to $107.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.10 at 9:08 a.m. London time. The contract closed up $1.77 at $108.84 yesterday, after rising as high as $110.55. Prices are down 1.6 percent this week and up 5.8 percent from a year ago.

Brent oil for April settlement slipped $1.42, or 1.1 percent, to $124.78 on the London-based ICE Futures Europe exchange after falling as much as 1.3 percent earlier. It surged as much as 4.7 percent to $128.40 yesterday, the highest price since July 2008, the month Brent reached a record $147.50. The European benchmark contract’s premium to West Texas Intermediate was at $16.73 a barrel today.

Saudi Fire

A fire occurred in an industrial area in the town of Safwa in Shiite-dominated Qatif near Saudi Arabia’s Ras Tanura refinery, according to a person with knowledge of the situation. The blaze didn’t damage the refinery or any pipeline in the area, said two people familiar with the situation who declined to be identified.

“The most interesting thing is that prices have not fallen back more after Saudi sources denied the whole matter,” Petersson said. “I would be surprised if we do not see crude fall back more today.”

Oil has gained this year on concern a dispute between the western nations and Iran over the Persian Gulf nation’s nuclear program will lead to military conflict in a region that holds more than half the world’s crude. Israeli Prime Minister Benjamin Netanyahu is scheduled to meet U.S. President Barack Obama in Washington on March 5 to discuss the issue.

Possible Attack

The Obama administration is escalating warnings that the U.S. may join Israel in an attack on the nuclear facilities if Iran doesn’t dispel concern that its atomic-research program is aimed at producing weapons. Air Force Chief of Staff General Norton Schwartz told reporters this week that the Joint Chiefs of Staff have prepared military options.

“The situation is overdone for now but the geopolitical risk does keep a boil under the market,” said Anthony Nunan, a senior adviser for risk management at Mitsubishi Corp. (8058) in Tokyo. “Everyone is on edge because of the situation in Iran.”

Brent averaging $135 a barrel this year would cut economic growth in Asia, with India, Korea, Thailand and the Philippines hurt much more than China, Malaysia or Singapore, according to Nomura Holdings Inc.

Growth in Asia excluding Japan would fall to 6.1 percent from 6.6 percent if oil prices remain at those levels, Rob Subbaraman, Nomura’s chief economist for the region, said in a report e-mailed today. Crude may peak at $150 in the second quarter in an “ugly” scenario driven by supply factors or financial speculation, the bank said.

Crude prices may rise next week as U.S. gasoline gains amid declining inventories, a Bloomberg News survey showed. Fourteen of 25 analysts, or 56 percent, forecast oil will increase through March 9. Eight respondents, or 32 percent, predicted prices will fall and three estimated there will be little change. Last week, 43 percent of surveyed analysts expected an increase.

Bloomberg