Oil Pierces Two-Year High as Saudi Roundup Rattles Markets

Updated on
  • Crown Prince Mohammed bin Salman consolidates hold on power
  • Security forces detain royalty, ministers, billionaires
BlackRock's Harrison Sees Oil Risks in Saudi Crackdown

Oil prices have climbed by $15 from their nadir this year to breach $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 specter of instability in the kingdom,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, by telephone. “It’s another round of jawboning here to get this nervous market higher.”

Futures rallied 3.1 percent 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 by telephone. 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 Organization of Petroleum Exporting Countries and allied producers including Russia. At the Nov. 30 gathering, Saudi Arabia, Iraq and other major suppliers are expected to make the case for extending the limits beyond their March expiration.

The low point for oil prices in New York this year was 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 percent, led by increases from driller Chesapeake Energy Corp. and the oilfield services company Baker Hughes.

West Texas Intermediate for December delivery jumped $1.71 to settle at $57.35 a barrel on the New York Mercantile Exchange. That’s the biggest gain since Sept. 25 on a percentage basis. Total volume traded was about 27 percent above the 100-day average.

Brent for January settlement surged $2.20 to settle at $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 $6.70.

See: Brent bets reach new high as OPEC gets hedge funds stoked

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 in a telephone interview.

Meanwhile, the Bloomberg Dollar Spot Index, a gauge of the dollar against 10 major peers, dropped as much as 0.3 percent. A weaker greenback boosts the appeal of commodities as an investment.

Oil-market news:

  • Oil stockpiles at the key pipeline hub in Cushing, Oklahoma, rose by 400,000 barrels last week, according to a forecast compiled by Bloomberg.
  • Nigeria is ready to meet with the Niger Delta Avengers and other armed groups in the southern oil-rich region, Reuters reports, after the militants ended their truce.
  • U.S. oil rigs targeting crude dropped by eight to 729 last week, the biggest decline since May 2016, according to Baker Hughes data.

— With assistance by Jinan Warrayat, Ben Sharples, and Grant Smith

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