Oil prices rose on the news of the death of Saudi Arabia’s powerful King Abdullah, but the increase is likely to be short-lived without a cut in the kingdom’s immense crude production.
The benchmark U.S. crude futures contract was up 71 cents to $47.02 a barrel on Friday (today). Brent crude, an international benchmark, was up 92 cents to $49.42 a barrel.
The small rise reflects added uncertainty about Saudi oil policy because the country’s new absolute monarch, Abdullah’s 79-year-old half-brother Prince Salman, is in poor health.
Still, the months-long slump in oil prices that is providing a boost to the stumbling world economy is unlikely to reverse unless Saudi Arabia cuts production or world demand starts strengthening again. Some analysts think Saudi production won’t be lowered anytime soon because the country wants to maintain its market share.
Saudi Arabia occupies a unique position in world oil markets. It is one of the world’s biggest producers, it has the strongest voice within OPEC as its largest exporter, and it is the only oil producer that has the ability to significantly increase or decrease output in response to changing market conditions.
Oil prices have plummeted nearly 60 percent since June. Global supplies have soared, thanks partly to a boom in U.S. shale oil production, at a time when growth in global demand for crude has slowed.