Saudi Arabia crackdown powers oil prices to a two-year peak on fears of instability
Oil prices have climbed by US$15 from their nadir this year to breach US$57 a barrel on Monday, spurred by a cascade of events that began with widespread arrests among Saudi Arabia’s elite.
The arrests raise “the spectre of instability in the kingdom,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It’s another round of jawboning here to get this nervous market higher.”
Futures rallied 3.1 per cent in New York to levels last seen in June 2015. Dozens of princes, government ministers and billionaires were arrested in a sweeping anti-corruption probe, including high-ranking officials involved with state oil producer Saudi Aramco. Though the shake-up involving the world’s biggest crude exporter underpinned crude’s rally, a promise by Nigeria’s oil minister to cap production joined with the dollar’s drop added upward momentum as the session progressed.
“The geopolitical supply risk premium is starting to bear its head in the market right now because Opec supply cuts have made it relevant,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said. Now that Opec “has capped supply and demand has continued to grow higher over time, we are near balanced and that means supply risk is more important.”
Oil has climbed for four straight weeks in New York on signs a global glut is shrinking in response to output caps implemented by the Organisation of Petroleum Exporting Countries and allied producers including Russia. At the November 30 gathering, Saudi Arabia, Iraq and other major suppliers are expected to make the case for extending the limits beyond their March expiration.
West Texas Intermediate for December delivery jumped US$1.71 to settle at US$57.35 a barrel on the New York Mercantile Exchange. That’s the biggest gain since September 25 on a percentage basis. Total volume traded was about 27 per cent above the 100-day average.
Brent for January settlement surged US$2.20 to settle at US$64.27 on the London-based ICE Futures Europe exchange, the largest rise since July. The premium at which Brent traded to January WTI was US$6.70.
Security forces arrested 11 princes, four ministers and dozens of former ministers and prominent businessmen, according to Saudi media and a senior official who spoke on condition of anonymity.
The Nigeria oil minister’s comments that the producer is willing to limit output added to the bullish price momentum, according to Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC. “That news basically was out there already, but it definitely helped.” Zahir said.
The low point for oil prices in New York this year was US$42.05 a barrel in June. Monday’s gain also kicked up company shares with the Standard&Poor’s 500 Energy Index advancing as much as 2 per cent, led by increases from driller Chesapeake Energy Corp and the oilfield services company Baker Hughes.