Oil Pares Gains as New Saudi King Says Policies Won't Change

Oil pared gains following the death of King Abdullah of Saudi Arabia as his successor said policies won’t change in the world’s largest crude exporter.

Futures climbed as much as 2.6 percent in London and 3.1 percent in New York after the Saudi royal court announced the death in a statement. King Salman bin Abdulaziz, 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.

“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. Since the bounce, prices have drifted lower again.”

Oil has slumped 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.

Brent crude for March settlement advanced as much as $1.28 to $49.80 a barrel on the ICE Futures Europe exchange and traded for $49.42 a barrel as of 11:01 a.m. local time. The grade has lost 1.5 percent this week. Brent, used to price more than half the world’s oil, traded at a premium of $2.55 to WTI, compared with $1.04 on Jan. 16.

Smooth Transition

West Texas Intermediate for March delivery gained as much as $1.45 to $47.76 a barrel in electronic trading on the New York Mercantile Exchange. Total volume was about 24 percent above the 100-day average for the time of day. Prices have lost 3.7 percent this week.

Saudi Arabia’s current oil strategy of maintaining output levels will remain unchanged, said Commerzbank AG, BNP Paribas SA and Bank of America Corp.

“There is no tangible evidence to to suggest that Saudi Arabia will veer away from its existing policy of keeping oil output steady in the face of growing U.S. shale oil supply, with a view to crowding out the marginal higher-cost producers within non-OPEC,” Harry Tchilinguirian, head of commodity markets strategy at BNP in London, said by e-mail.

Ministerial Appointments

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.

Ali al-Naimi, who has driven decision-making at the Oil 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.”