THE PRICE of crude oil is slowly retreating this morning after an overnight rally sent its cost to the highest it had been in 43 months.

Prices had surged last night after a report of a pipeline explosion in Saudi Arabia, the world’s biggest oil producer, with investors fearing that the blast could lead to a significant shortage.

In New York the price of a barrel peaked at $128.40, a jump of $5.74, the highest price it had seen since July 2008.

Prices had already been rising over fears of unrest in the Middle East and the continuing fears over Iran and the possibility of an escalation in the nuclear conflict there.

The price has since abated in Asian trading, however, as the Saudi Arabian authorities denied the reports of the blast. In London, oil for delivery in April had slid back to $124.99 this morning.

Indeed, Bloomberg said the decline, coming after a spokesman for the Saudi interior ministry rose about $110 per barrel, meant the price of oil could be set to decline on a week-by-week basis for the first time in a month.

The oil market is particularly volatile at the moment because of an unusually tense situation where a number of countries face potential disruptions to their supplies.

The European Union, for example, has placed an embargo on imports of oil from Iran, which in turn has threatened to close access to the Strait of Hormuz, a vital channel for the shipment of oil to the wider world.