Oil prices rise following death of Saudi king
WASHINGTON – Oil prices jumped $1 a barrel to a new high Monday after the death of Saudi Arabia’s King Fahd raised concerns about the kingdom’s long-term political stability. The rally, which faded late in the day, also stemmed from traders’ skittishness about U.S. refinery glitches and Iran’s nuclear program.
Saudi Arabia said its oil policy will not change now that power has formally shifted to Fahd’s 81-year-old brother, the de facto leader during the past decade. However, with oil consumption rising around the world and only a limited amount of excess production capacity available, energy traders are easily put on edge by a change in the weather in an oil-pumping region, let alone a transfer of authority within the world’s biggest oil producer.
“The market is hypersensitive to facts, rumors and noise because the supply cushion is gone,” said Larry Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation.
Light sweet crude for September delivery briefly rose as high as $62.30 a barrel on the New York Mercantile Exchange, then retreated to settle at $61.57, a rise of $1. The previous closing high on Nymex was $61.28, set July 6, while the previous intraday high was $62.10.
Oil prices are still well below the inflation-adjusted high of about $90 a barrel set in 1981.
Adding to the oil market jitters was the imminent resumption of uranium reprocessing in Iran. It is one step below uranium enrichment, which is necessary for the development of nuclear weapons. Iran suspended enrichment of uranium in November under international pressure, but the country maintains that it has the right to resume the activities.
Traders also kept an eye on refinery operations in the United States, where the rate of output has fallen to about 93.5 percent of capacity, down from 98.1 percent of capacity over the past three weeks, in part because of hurricane-related power outages. Last week, two refinery fires – one in Texas, one in Louisiana – stifled production, albeit to a limited extent.
“Any excuse the bulls have to take it (the price of oil) higher, they’re going to use,” said Peter Beutel, president of Cameron Hanover Inc. of New Canaan, Conn., which publishes a daily newsletter on energy-market trends.
King Fahd died early Monday after a prolonged hospitalization, the Saudi royal court announced. His brother, 81-year-old Crown Prince Abdullah, was appointed the new monarch in a transition that had been years in the making.
“It’s going to be business as usual inside Saudi Arabia,” said Goldstein. The longer-term concern is that each successive transition of power in Riyadh will become trickier, he added.