|Meet the new boss [L], same as the old boss [R]?|
Oil prices jumped on Friday as news of the death of Saudi Arabia's King Abdullah added to uncertainty in energy markets already facing some of the biggest shifts in decades. Abdullah died early on Friday and his brother Salman became king in the world's top oil exporter. Salman named his half-brother Muqrin as heir, moving to forestall any succession crisis at a moment when Saudi Arabia faces unprecedented turmoil on its borders and in oil markets.
Brent crude futures rose to a high of $49.80 a barrel shortly after opening before easing back to $49.30 a barrel by 0650 GMT, up 78 cents. U.S. WTI crude futures were at $47, down from a high of $47.76 earlier in the session."This little spike in prices is understandable. But this is a selling opportunity in our view. It should be sold off quickly and it won't last long at all," said Mark Keenan of French Bank Societe Generale. After seeing strong volatility and price falls earlier in January, oil markets have moved little this week, with Brent prices range-bound between $47.78 and $50.45 a barrelTo be sure, there are no expected changes in Saudi policy, especially in terms of cutting oil production as OPEC's most vulnerable members like Venezuela suggest:
The new king is expected to continue an OPEC policy of keeping oil output steady to protect the cartel's market share from rival producers. "When King Salman was still crown prince, he very recently spoke on behalf of the king, and we see no change in energy policy whatsoever," Keenan said.Even if the oil minister Al-Naimi is replaced, there is little likelihood that Saudi leadership will curtail Saudi output. Why this move upwards in oil markets, then? I believe that the phenomenon of none of the major producers curtailing their output (least of all Saudi Arabia) is still putting downward pressure on oil prices. What appears to be a brief move upwards is a "dead cat bounce" in what appears to be a prolonged bear market absent major supply disruptions in the near future. So King Salman is a force for continuity rather than change, and replacing the oil minister with someone else is unlikely to result in any changes. However, in this kind of market, any sort of event that can at marginally raise doubts about the continuity of policy in the world's largest oil exporter is viewed with some interest. Perhaps Salman is ever-so-slightly more hawkish on output? Perhaps Al-Naimi will be replaced by someone not as bold as to say Saudi Arabia will "never cut oil prouction"?
Analysts said almost equally as important as the royal succession to energy markets would be whether Saudi oil minister Ali Al-Naimi, in office since 1995, might step down. "The real question is if there is a new oil minister soon," asked FGE analyst Tushar Bansal, adding that Al-Naimi had reportedly wanted to step down but been convinced by King Abdullah to stay on.
When trading is range-bound as it is now, those few dollars and cents of movement mean a lot more than they did in the months before, and we are bearing witness to that right about now.