The death of powerful King Abdullah of Saudi Arabia, the kingpin of the Organization of Petroleum Exporting Countries (OPEC), spiked oil prices although his successor may well follow Riyadh’s previous policy of not cutting the kingdom’s immense crude production.
The death of the king is going to increase uncertainty and volatility in oil prices in the near term. Traders are carefully watching Saudi politics as Abdullah’s 79-year-old half brother Prince Salman, who is in poor health, became Saudi Arabia’s new absolute leader.
“One of the benefits of actually having a really well-spread family and dynasty running a country in possibly a less democratic manner is you do tend to get a consistency of policy and given the fact that he has been crown prince for some time I would like to think that consistency is going to be there,” Justin Urquhart Stewart, director at Seven Investment Management in London, toldNew Europe on January 23, referring to new King Salman. “We need the consistency of policy within Saudi and we need the consistency of the political attitude with America as well and we need it for regional stability,” Urquhart Stewart said.
On January 23, Brent crude futures rose to a high of $49.80 a barrel shortly after opening before easing back to $49.30 a barrel by 0650 GMT, up 78 cents. US WTI crude futures were at $47, down from a high of $47.76 earlier in the session.
Oil prices have plummeted nearly 60% since June. Global supplies have soared, thanks partly to a boom in US shale oil production, at a time when growth in global demand for crude has slowed. American crude stockpiles jumped by 10.1 million barrels, Energy Information Administration’s report said last week.
In November, Saudi Arabia led a decision by OPEC to maintain its oil production quota at 30 million barrels per day and, according to some analysts, Saudi production won’t be lowered anytime soon because the country wants to maintain its market share. The country produced 9.6 million barrels a day in January.
The question now is whether Abdullah’s successor King Salman will change the Riyadh’s oil policy and whether he retains Saudi Oil Minister Ali Al-Naimi. The minister has expressed a desire to retire, but he is expected to stay on at least through OPEC’s scheduled meeting in June. “There is going to no change to any policy from OPEC which I think from now on should be called NO-PEC,” Urquhart Stewart said.
London-based energy analystManouchehr TakintoldNew Europe on January 23 that he doesn’t believe that there will be much change in Saudi oil production policy any time soon. “But with the new king there is a slightly greater possibility that Saudi Arabia will become more flexible a bit sooner than it would have been under King Abdullah,” Takin said, adding that the late king had stated that they wouldn’t change the oil production.
King Salman has named his half-brother Muqrin as his crown prince and heir, easing fears of a succession crisis at a moment when Saudi Arabia faces turmoil on its borders from the rise of Islamic State in Syria and Iraq.
Urquhart Stewart said Saudi Arabia needs to underline their stability to actually ensure that there is a smooth handover of management. “When you have a gerontocracy like that it finds it very difficult to change and adjust although this late king has had some reforms coming through. Assuming that this will carry on, it is vital that we actually have consistency of behaviour, of politics to ensure that there is a strong government there to manage all its borders - not just because of what’s happening with ISIS but also what’s happening with Yemen as well and the destabilisation that’s happening there with that notoriously unreliable area,” Urquhart Stewart said.
http://www.neurope.eu/article/king-abdullah%E2%80%99s-death-upsets-oil-markets