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Oil Trades Near 2-Year High as Saudi Upheaval Spurs Risk Premium

November 7, 2017 by Ben Sharples and Grant Smith


Oil traded near the highest level in more than two years as political upheaval in top crude exporter Saudi Arabia reverberated through a market where prices were already elevated by signs of tightening supply.

Investors have piled into oil as a shake-up of the ruling elite in OPEC’s biggest producer was seen to consolidate power with Crown Prince Mohammed bin Salman, who backs extending the group’s output cuts aimed at clearing a global glut. The purge also raised concern over instability in the kingdom, supporting a geopolitical-risk premium on crude that’s emerged with heightened tensions surrounding nations such as Iraq and Iran.

Oil’s gained more than 20 percent since the beginning of September on signs global supplies are tightening and the  Organization of Petroleum Exporting Countries and its allies may prolong their output deal past March. Fighting between the Iraqi government and Kurdish forces over a disputed oil-rich region had also boosted prices. The past weekend’s arrests in Saudi Arabia eliminated potential rivals to Prince Mohammed.

“One out of nine of barrels in the world is produced out of Saudi Arabia, so whatever happens in Saudi Arabia is really a revolution or turmoil for the world of oil,” Paolo Scaroni, vice-chairman of NM Rothschild & Sons and former chief executive officer of Italian oil giant Eni SpA, said on Bloomberg Television. “With this additional uncertainty of what happened in Saudi Arabia over the weekend, prices spiked up.”

West Texas Intermediate for December delivery rose as much as 34 cents to $57.69 a barrel on the New York Mercantile Exchange and was little changed at 10:16 a.m. in London. Total volume traded was about 37 percent above the 100-day average. Prices climbed $1.71, or 3.1 percent, to $57.35 on Monday, the highest close since June 2015.

Brent for January settlement slipped 12 cents to $64.15 a barrel on the London-based ICE Futures Europe exchange. Prices rose 3.5 percent to $64.27 on Monday, the highest close since June 2015. The global benchmark crude traded at a premium of $6.57 to January WTI.

The arrests of princes and officials in Saudi Arabia were “merely the start of a vital process to root out corruption wherever it exists,” the nation’s attorney general said Monday. Local banks also began freezing the accounts of those implicated, according to two people with knowledge of the matter.

The moves in Saudi Arabia “will have no impact on oil policy,” Bob McNally, president of consultants the Rapidan Group LLC, said by email. “Market sentiment has been quite bullish and this just stoked more buying.”

Oil-market news:

U.S. crude stockpiles probably slid 2.45 million barrels last week, according to a Bloomberg survey before government data Wednesday. Crude oil inventories in China, the world’s biggest importer, halted a three-month slide last week, according to a satellite data analysis from Ursa Space Systems Inc.

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