[IteseFrusty]

Oil fell the most this year as President Barack Obama said a pre-emptive strike on Iran might generate “sympathy” for the Persian Gulf country, easing concern that an attack would take place.

Prices dropped for the first time in three days after Obama said in an interview with The Atlantic magazine that a strike without warning might allow Iran to portray itself as a victim. Futures also declined as the dollar rose before reports next week that may show U.S. economic growth.

“Obama is saying that we don’t want to attack Iran prematurely and that’s alleviating some concern,” said Phil Flynn, an analyst at PFGBest in Chicago. “An imminent attack is probably less likely based on the article and we seem to be reducing the Iran risk premium.”

Oil for April delivery fell $2.14, or 2 percent, to settle at $106.70 a barrel on the New York Mercantile Exchange. The percentage decline is the biggest since Dec. 14. Prices fell 2.8 percent this week, the first weekly loss since Feb. 3

Brent oil for April slipped $2.55, or 2 percent, to settle at $123.65 a barrel on the London-based ICE Futures Europe exchange. It surged to $128.40 yesterday, the highest intraday price since July 2008.

Netanyahu Visit
Oil has gained 8 percent this year on concern that the dispute between Western nations and Iran over the Persian Gulf country’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 Obama in Washington on March 5 to discuss the issue.

“At a time when there is not a lot of sympathy for Iran and its only real ally is on the ropes, do we want a distraction in which suddenly Iran can portray itself as a victim, and deflect attention from what has to be the core issue, which is their potential pursuit of nuclear weapons?” Obama said in the interview published today.

The Dollar Index (DXY), which tracks the U.S. currency against six counterparts including the euro and the yen, rose 0.8 percent to 79.427. The weekly gain of 1.4 percent would be the largest of 2012.

The euro weakened versus the dollar after Germany’s statistics bureau said retail sales adjusted for inflation and seasonal swings fell 1.6 percent in January. A stronger dollar reduces oil’s appeal as an investment alternative.

‘Jittery Market’
Oil in New York rose to $110.55 yesterday after floor trading closed when Iran’s state-run Press TV said on its English-language website that “an explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awwamiya.” Major General Mansour Al-Turki, a spokesman for the Saudi Interior Ministry, said no oil facility in the region has been sabotaged.

“That’s a concrete demonstration of risk premium,” said Daniel Yergin, chairman of IHS CERA and the Pulitzer Prize- winning author of “The Prize,” a history of the oil industry, and its sequel, “The Quest,” said in a telephone interview. “This is a very jittery market and anything that happens is kind of seen in the context of the overall increased risk.”

There was a fire yesterday near Saudi Arabia’s Ras Tanura refinery in the town of Safwa in Shiite-dominated Qatif, 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.

‘Too Overbought’
“The Saudi denial set the table for prices to come down,” said Peter Beutel, president of trading advisory company Cameronhanover.com in New Canaan, Connecticut. “This market was too overbought and we know the fundamentals have been lagging far behind this market.”

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.

Electronic trading volume on the Nymex was 558,502 contracts as of 2:59 p.m. in New York. Volume totaled 864,500 contracts yesterday, 41 percent above the three-month average. Open interest was 1.56 million contracts, the highest level since Aug. 16.