Oil pares gains as new Saudi King says policies won’t change
GRANT SMITH
LONDON (Bloomberg) -- Oil pared gains following the death of King Abdullah of Saudi Arabia as his successor said policies won’t change in the world’s largest crude exporter.
Futures climbed as much as 2.6% in London and 3.1% in New York after the Saudi royal court announced the death in a statement. Crown Prince Salman bin Abdulaziz, who succeeds Abdullah on the throne, said he would maintain his predecessor’s policies. Oil Minister Ali Al-Naimi, who led OPEC’s November decision to defend market share against surging U.S. shale supplies, remains in his post, according to state-run Saudi Press Agency.
“It was expected the oil market would react nervously to the king’s death,” said Giovanni Staunovo, an analyst at UBS AG in Zurich. “But it’s likely to be a short-term reaction as the majority of market participants don’t expect a change in Saudi policy. Since the bounce, prices have drifted lower again.”
Oil has slumped 37% since the Organization of Petroleum Exporting Countries’ Nov. 27 accord to maintain production at 30 MMbopd amid a glut caused in part by the fastest U.S. output in three decades. Saudi Arabia’s oil strategy is likely to remain unchanged as King Salman assumes power, according to Bank of America.
Brent crude for March settlement advanced as much as $1.28 to $49.80/bbl on the ICE Futures Europe exchange and traded for $49.55/bbl as of 8:49 a.m. local time. The grade has lost 1.3% this week. Brent, used to price more than half the world’s oil, traded at a premium of $2.39 to WTI, compared with $1.04 on Jan. 16.
Smooth Transition
West Texas Intermediate for March delivery gained as much as $1.45 to $47.76/bbl in electronic trading on the New York Mercantile Exchange. Total volume was about 28% above the 100-day average for the time of day. Prices have lost 3.1% this week.
“We do not expect a near-term change in economic and energy policy from the transition” as Salman’s recent comments “do not foreshadow a major change,” while Oil Minister Ali Al-Naimi is trusted and been in place for many years, analysts at Bank of America said in a report.
King Abdullah oversaw a fivefold expansion in the size of the Arab world’s biggest economy and met the Arab Spring with a mixture of force and largesse. He died after almost a decade on the throne. He was born in 1924.
“The passing of King Abdullah is going to increase uncertainty and increase volatility in oil prices in the near term,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “I wouldn’t expect a change in policy in the near term to be known, but the passing comes at a challenging time for Saudi Arabia.”
