Oil price jumps to 43-month high on Saudi blast reports

Crude oil prices have hit a 43-month high after reports that a pipeline exploded in Saudi Arabia, the world's biggest oil producer.

Brent crude jumped $5.74 to $128.40 per barrel in New York on Thursday, the highest since July 2008.

Saudi officials denied the reports, however, helping prices fall back from their highs in Asia on Friday.

A number of issues have pushed prices higher, including tensions over Iran's nuclear plans and regional unrest.

The new high set on Thursday beat the level seen during the Libyan civil war last year.

In early trading on Friday, Brent was trading at $126.07 per barrel, with US light sweet crude at $108.87 per barrel.

The sharp move up on the pipeline story points to the market nervousness on anything related to supply problems”

The problem facing the oil market at the moment is that events in a number of countries could have an impact on supply and demand, often causing traders to react more quickly to speculation and increasing volatility.

On Thursday, the trigger was a report in the Iranian media that an explosion had occurred at a pipeline in Saudi Arabia.

The report came at a time when there has been a steady increase in friction between the US, its allies and Iran.

The US has imposed fresh sanctions against Tehran targeting the country's oil exports, while the European Union has announced a ban on imports of Iranian oil.

For its part, Iran has threatened that it will close the Straits of Hormuz, a vital oil-trade route for oil from the Gulf - including Saudi oil - if the West imposes more sanctions.

Analysts said all these issues had created an uncertainty over oil supplies and the latest reports had only fanned those fears further.

"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.

Some of biggest buyers of Iranian oil are Asian economies such as China, Japan, India and South Korea.

The US has been trying to convince these nations to reduce their imports of Iranian oil, to put further pressure on Tehran.

Earlier this year, US Treasury Secretary Timothy Geithner visited China and Japan to drum up support for US sanctions.

But there have been concerns that if nations stop buying oil from Iran they will have to turn to other oil producers in order to meet their demand, pushing up prices and hurting global economic growth.

However, US authorities tried to allay those fears, saying that global oil producers were well placed to make up for any shortfall in Iranian oil.

"I think there is sufficient spare capacity," said Steven Chu, US Energy Secretary.