King Abdullah, the leader of OPEC’s top producer, Saudi Arabia was the architect of the current strategy to keep production high and force out smaller players instead of cutting.
The news of his death last week spiked debates over even more increased volatility in oil prices.
Following the announcement by the Saudi royal court, futures in New York and London rose by 3.1 percent and 2.6 percent, respectively.
In early Asian trading, US benchmark WTI crude futures increased by over 2 percent, reaching $47.76 per barrel. At the time of publication, oil futures for March were edging closer to $50 per barrel – at $49.3 per barrel.
In November, Saudi Arabia led a decision by the Organization of Petroleum Exporting Countries (OPEC) to maintain its oil production quota at 30 million barrels per day.
As a result, the oversupply and slow demand saw oil prices slumping almost 50 percent since peaking in June 2014.
The current situation on the energy markets was, in large part, caused by the US as the world’s top oil consumer became one of the leading producers due to booming shale output.
American crude stockpiles jumped by 10.1 million barrels, which is the largest increase since early 2001, last week’s Energy Information Administration’s report said.
Ole Sloth Hansen, trader and head of commodity strategy on the effect of King Abdullah’s death on on the markets:
Crude oil rose in Asia from the weakest close in almost five years on the news that Saudi Arabia’s King Abdullah has died. His successor King Salmon is 79 years and will most likely be viewed as a transitional figure. From an oil market perspective the big focus is now whether its oil minister Al-Naimi who has been in the job since 1995 will continue.
A change in oil price policy at this stage seems highly unlikely not least considering the belief that the applied medicine of lower oil prices have already begun to impact the future outlook for supply.
US inventories has risen to an 80-year for this time of year and the 10.1 million barrels increase last week was the biggest in 14 years. Changing policy on the back of such data will only lead to an even bigger reduction in OPEC’s market share.
One thing is supply and demand, another is geo-politics. Saudi Arabia provides 10% of the world’s oil and developments there naturally enough receives close attention from the outside world.