Saudi King’s Death Fuels Uncertainty as Oil Prices Jump

Saudi King’s Death Fuels Uncertainty as Oil Prices Jump

As news of the death of Saudi Arabia’s King Abdullah’s death spread, oil prices jumped and fluctuated, adding to the uncertainty existing in the energy markets and facing some of the biggest shifts in years.

King Abdullah died early on Friday(23 Jan 2015) and his successor (brother) Salman became king, the royal court in the world’s top oil exporter, and the birthplace of Islam said in a statement released.

Brent crude rose to $49.80 a barrel shortly after opening before easing back to $49.52 a barrel. US benchmark WTI crude was at $47.11, up 80 cents, slightly below a high of $47.76 hit earlier in the market.

According to John Kilduff, partner, Again Capital LLC in New York, “The fear of the unknown is going to be supportive to crude oil prices. King Abdullah was the architect of the current strategy to keep production high and force out smaller players instead of cutting.”

OPEC had taken the stance of keeping oil production steady and not cutting production in order to weed out smaller players and in the fear of losing market shares. Analysts expect the new king  Salman to stick to the OPEC policy of keeping oil output firm to protect the association’s market share from rival producers.

IHS consultant Victor Shum said, “The decision by Saudi Arabia to keep pumping oil was made regardless of who the king maybe.”

Oil prices have dropped perilously since peaking in June last year as increasing supplies clashed with less demand, and due to an economic slowdown in Europe and Asia as well as improvements in energy efficiency—made during times of high oil prices. Also, the turmoil in Iraq and Libya—big oil producers themselves with nearly 4m barrels a day combined—has not affected their output. Booming US shale production has turned the United States from the world’s biggest oil importer into one of the top producers now. Although shale oil production is more expensive, this has not affected their output.

Data from the Energy Information Administration showed the biggest build in US crude inventory in at least 14 years, spacing out Brent and WTI prices.

To combat falling prices and spiraling output, many oil exporters, such as Venezuela and Russia, wanted the 13-member Organization of the Petroleum Exporting Countries (OPEC) to cut output in order to support prices and revenues. Yet, led by Saudi Arabia, OPEC announced last November it would keep output stable at 30 million barrels per day.

Brent—which had already dropped to $77 by the time of the OPEC meeting last year—dropped another quarter as the market digested the unexpected stance that OPEC would not come to the rescue.

OPEC’s decision not to act, led by Saudi Arabia, was mainly aimed at preserving its market share against US shale producers as well as other non-OPEC exporters such as Brazil or Russia, and to put small players out of the running.



Open chat
Need Help?

Can we help you?