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05 December 2023

Oil surges after Saudi King's death

An idled pump jack, once used to extract crude oil from the ground, sits above a well on the edge of a farmers field on January 21, 2015 near Ridgway, Illinois. With oil prices near a 5 1/2-year low, oil companies are beginning to slow drilling operations in the United States. (Getty Images/AFP)


Oil prices surged Friday following the death of Saudi Arabia's King Abdullah, with investors watching to see if his successor will maintain production levels in the face of a global supply glut.

US benchmark West Texas Intermediate (WTI) for March delivery soared as much as 3.1 percent 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 Opec's decision to keep the cartel's production quota unchanged at a meeting in November.

In midday Asian trade on Friday, WTI for March delivery was up 84 cents, or 1.81 percent, at $47.15 a barrel. Brent crude for March jumped 87 cents, or 1.79 percent, to $49.39.

"The market is probably uncertain over what the new king would do about this over supply issue," said Daniel Ang, an investment analyst with Phillip Futures in Singapore.

"The market was just pricing this uncertainty," he told AFP.

Oil prices tumbled on Thursday after news the European Central Bank launched a vast bond-buying programme aimed at kickstarting the eurozone economy. The news pushed down the euro, making dollar-priced oil relatively more expensive.

King Abdullah bin Abdulaziz is replaced by Crown Prince Salman, the royal court said in a statement after his death on Friday.

Analysts said the focus will turn to whether Salman, 79, keeps Ali al-Naimi as the country's oil minister -- a position he has held since 1995.

"This is the 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.

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.


Main producer

"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."

Oil prices have lost more than half their value since June, when they were sitting at more than $100 a barrel.

The Organization of the Petroleum Exporting Countries, 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 12 members to slash output, preferring instead to lower prices in a bid to gain market share.

Opec 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.

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.

He died on Friday at 1:00 am (2200 GMT) and will be buried later in the day following afternoon prayers.

In recent years, his advanced age and poor health had raised concerns about the future leadership of one of the world's key oil producers.

Salman was named crown prince in June 2012 following the death of Prince Nayef bin Abdulaziz.

Salman had been representing the king at most recent public events because of the monarch's poor health.

In March 2014, King Abdullah named his half-brother Prince Moqren as a second crown prince, in an unprecedented move aimed at smoothing succession hurdles.

Since the death in 1952 of King Abdulaziz al-Saud, the founder of Saudi Arabia, the throne has systematically passed from one of his sons to another.