Oil erased gains in New York following the death of King Abdullah of Saudi Arabia as his successor said policies won’t change in the world’s largest crude exporter.
Brent pared an earlier advance of as much as 2.6 percent in London. Salman Bin Abdulaziz Al Saud, who succeeds Abdullah on the throne, said he would maintain his predecessor’s policies. Oil Minister Ali Al-Naimi, who led OPEC’s November decision to defend market share against surging U.S. shale supplies, remains in his post, according to state-run Saudi Press Agency.
“The mild market reaction is pretty rational,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s highly unlikely that you are going to see any major change in oil policy.
Oil has slumped about 36 percent since the Organization of Petroleum Exporting Countries’ Nov. 27 accord to maintain production at 30 million barrels a day amid a glut caused in part by the fastest U.S. output in three decades. Saudi Arabia’s oil strategy is likely to remain unchanged as King Salman assumes power, Fatih Birol, chief economist at the International Energy Agency, said at the World Economic Forum in Davos, Switzerland.
Stronger Dollar
WTI for March delivery fell 10 cents, or 0.2 percent, to $46.21 a barrel at 11:30 a.m. on the New York Mercantile Exchange. The contract earlier rose as much as 3.1 percent. Volume was about 35 percent above the 100-day average.Brent crude for March settlement advanced 36 cents, or 0.7 percent, to $48.88 a barrel on the ICE Futures Europe exchange after climbing to $49.80. The volume of all futures was 10 percent above the 100-day average. Brent, used to price more than half the world’s oil, traded at a premium of $2.72 to WTI on the ICE, compared with $1.04 on Jan. 16.
The euro dropped to the lowest level in more than 11 years versus the dollar as the European Central Bank widened its stimulus program. A stronger dollar reduced oil’s investment appeal.
‘‘It was expected the oil market would react nervously to the king’s death,” said Giovanni Staunovo, an analyst at UBS AG in Zurich. “But it’s likely to be a short-term reaction as the majority of market participants don’t expect a change in Saudi policy.”
Policy Unchanged
Saudi Arabia’s current oil strategy of maintaining output levels will remain unchanged, said Commerzbank AG, BNP Paribas SA and Bank of America Corp.“Such news was always going to provoke a short-term recovery and the whole focus of the market is shifting back to this region,” Eugen Weinberg, Frankfurt-based head of commodities research at Commerzbank, said by phone. “The new king will stick with the same oil policy -- it doesn’t make sense to change it.”
King Abdullah oversaw a fivefold expansion in the size of the Arab world’s biggest economy and met the Arab Spring with a mixture of force and largesse. He died after almost a decade on the throne. He was born in 1924.
The royal court said Salman, 79, was named king and Prince Muqrin, 69, another half-brother, has been chosen as Crown Prince. Salman appointed Prince Mohammed bin Nayef, the country’s Interior Minister, as deputy crown prince and his son Mohammed bin Salman as defense minister, Saudi State Television reported.
“The transition has been smooth,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by phone. “All signs point to stability. All ministers are to continue at their post, including al-Naimi.”
Oil Minister Al-Naimi, who has driven decision-making at the ministry since 1995 and turns 80 this year, has said he’d like to devote more time to his other job, chairman of the science and technology university named after the late sovereign.
“Any change in the minister now can create a lot of uncertainty in the market, which Saudi Arabia is going to try and avoid,” Amrita Sen, chief analyst at London-based consultants Energy Aspects Ltd., said by phone. “We do think there’s going to be a change, but not straight away.”
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