U.S. oil prices retreated over $1 after topping $100 a barrel early Friday when the International Energy Agency's chief economist said high prices are now "unbearable for consumers" and traders anticipated an announcement of a release of emergency oil reserves could be imminent.
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"I see the prices today, in this economic context, as unbearable for consumers," IEA chief economist Fatih Birol told Reuters. "High prices together with other factors could push the global economy back into recession," IEA chief economist Fatih Birol told Reuters.
Birol said the agency was monitoring markets very closely, though he did not say whether the latest price rises could prompt the IEA to carry out an emergency release of oil stocks.
U.S. oil futures climbed to their highest level since May and Brent crude prices rose to nearly $118 a barrel, as the "risk on" trade from the Fed's additional stimulus measures pressured the U.S. dollar and lifted many commodities. The geopolitical premium from protests and violence in the Middle East and North Africa added to the surge.
But oil prices pulled back slightly after the IEA official's comments. WTI oil futures settled at $99, up only fractionally on the day. While Brent crude futures finished at just over $116.50 a barrel. (Read More: Get Oil and Natural Gas Prices Here)
"That's a pretty important signal from the IEA, especially with the Iranian sanctions deadline looming," said energy analyst Kevin Book, managing director of Clearview Energy Partners in Washington, D.C. He believes an announcement of a release of supplies from the U.S. Strategic Petroleum Reserve could come as early as next week.
The Iran sanctions amendment to the 2012 National Defense Authorization Act granted 20 countries?including China, Japan, India and South Korea?exemptions from "significantly" reducing Iranian oil imports. The decision on whether those exemptions will be renewed is expected to come on Sunday.
"The White House could tighten sanctions against Japan next week and toughen its jawboning with India, China and South Korea while pre-emptively drawing the SPR to offset higher prices," Book wrote in a note to clients. "In this context, the act of enforcing tighter sanctions would cease to be a catalyst for higher prices and could instead become a defensible pretext for the President to lower prices by releasing strategic reserves."
"We're just waiting for the shoe to drop," said CNBC contributor and Again Capital founder John Kilduff.
"It sounds like they're telegraphing an SPR release," agreed NYMEX trader and broker Peter Donovan of Vantage Trading. "A price increase has been built in due to Fed stimulus and Mideast tensions, but this market has some real downside risk due to an ongoing financial problems in Europe and now the potential for an SPR draw."
"Still, traders may be hesitant to go home with short positions ahead of the weekend given the recently increased tensions throughout the Muslim world," Donovan said.
In light of violence and protests in Egypt, Lebanon, Sudan, Tunisia, Yemen and elsewhere in the Middle East and North Africa on Friday, traders will be watching developments in that part of the world very closely over the weekend and oil prices could be very volatile in the electronic trading session Sunday night.
"If I was going to be scared of crude oil price action any time of the year," Book said. "I'd be scared this weekend."
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