Oil prices surged on Friday, following the death of Saudi Arabia’s King Abdullah, with investors watching to see if his successor will maintain output in the face of a global supply glut that had sent crude to six-year lows.
US benchmark West Texas Intermediate (WTI) for March delivery soared as much as 3.1 per cent in New York after the Saudi royal court announced the death.
Oil prices have more than halved since the middle of last year, dragged down by an oversupply of crude in the face of weak global demand.
Saudi Arabia, the world’s top oil exporter, added to the slide when it led a decision by the Organization of the Petroleum Exporting Countries (OPEC) to keep the cartel’s production quota unchanged at a meeting in November.
In afternoon Asian trade on Friday, WTI for March delivery was up 90 cents, or 1.94 per cent, at $47.21 a barrel. Brent crude for March jumped $1.03, or 2.06 per cent, to $49.55.
“As we are uncertain of how the new king would react to the current supply glut, we believe that the market is pricing in this uncertainty causing prices to spike,” Daniel Ang, an investment analyst with Phillip Futures in Singapore, said in a market commentary.
Oil prices tumbled on Thursday after news the European Central Bank launched a vast bond-buying programme aimed at kick-starting the eurozone economy. The news pushed down the euro, making dollar-priced oil relatively more expensive.
But the news of the Saudi king’s death sparked a recovery in prices, with the royal court announcing in a statement on Friday that King Abdullah bin Abdulaziz would be replaced by Crown Prince Salman.
Analysts said the focus would now turn to whether Salman, 79, keeps Ali al-Naimi as the country’s oil minister — a position he has held since 1995.
“This is OPEC’s biggest producer we are talking about here,” said David Lennox, a resource analyst at Fat Prophets in Sydney.
“People will want to know more about the intentions of the successor to the throne,” he told AFP.
Oil prices have lost more than half their value since June, when they were sitting at more than $100 a barrel.
OPEC, which supplies about 40 percent of the world’s oil, accelerated the fall when it kept its output target at 30 million barrels a day at a November 27 meeting.
Saudi Arabia has rejected calls from some of the cartel’s 12 members to slash output, preferring instead to lower prices in a bid to gain market share.
The cartel is facing a growing challenge from the US, where booming shale oil production has flooded the market with supplies and reduced demand for imports from the world’s top crude consumer.
Michael McCarthy, chief market strategist at CMC Markets in Sydney, said he expects a smooth transition as the new king has already been making key executive decisions on oil and gas affairs.
“However, Saudi could in the short-term pull back slightly on oil production as a precautionary measure in this transitional phase,” he told AFP.
“At the moment there is no indication that the Saudis will slash output production by a large amount.”
King Abdullah, believed to be around 90 years old, was hospitalised in December suffering from pneumonia and had been breathing with the aid of a tube.
In recent years, his advanced age and poor health had raised concerns about the kingdom’s future leadership, with Salman named crown prince in June 2012.