The oil price has hit its highest level since July 2015 after Saudi Arabia’s crown prince increased his power in the kingdom by launching an anti-corruption purge.
Billionaire Prince Alwaleed bin Talal was among the princes, ministers and officials detained by Mohammed bin Salman, who said recently that he backed an extension to production curbs by the world’s biggest oil-producing countries.
Oil cartel Opec is to consider prolonging the production cuts at a meeting in Vienna at the end of November. Analysts said the uncertainty generated by the future king’s actions were behind the price of international benchmark Brent jumping to more than $62 a barrel, compared with around $50 in the first half of the year.
“The price rise is a reaction to the uncertainty from Saudi Arabia,” said Mihir Kapadi, chief executive of wealth management company Sun Global Investments.
Other factors have edged the oil price upwards. Saudi Arabia, Russia, Kazakhstan and Uzbekistan met over the weekend and said they were willing to maintain restrictions on oil production, to address a glut in supply and prop up prices.
“The participating states expressed satisfaction with the decline in commercial oil inventories and expressed their readiness to continue joint efforts in this direction,” the Russian energy ministry said in a statement.
The growth in US oil rigs this year – indicating a production increase by the world’s third largest producer – has muted the recovery of the oil price but the number of rigs plateaued in August. Last week the number fell by 11, down to 898.
Other recent geopolitical events have also played a role in oil’s new high, with concerns over the Iraqi government’s actions in Kurdish oil-producing areas and increased attacks on oil infrastructure in the Niger delta.
However, experts at Swiss banking group Julius Baer said the oil price high would not last and was likely to fall back towards $50 a barrel, as demand eased off.
“The seasonal soft patch should challenge the market tightening narrative while the market mood can only deteriorate from today’s overly bullish levels,” said Norbert Rücker, the bank’s head of macro and commodity research.
The crackdown by Saudi Arabia’s future king is seen by industry watchers as unlikely to change the country’s position on Opec policy. Mohammed bin Salman is pushing the sale of 5% of the the kingdom’s national oil company, Aramco, the valuation of which hinges on the oil price.
Analysts at investment bank RBC Capital Markets said the crown prince “seems strongly committed to anchoring the Opec agreement deep into 2018 and moving ahead with the Aramco sale”.
Saudi Arabia is the world’s biggest oil-producer, and Opec’s key player. The UAE and Iraq, which are both in the oil cartel, have also said they would back an extension to production curbs which were due to end in March 2018. The deal involves oil countries reducing production by 1.8m barrels a day, in an effort to bring global oil supply and demand back into balance.