News that Saudi King Abdullah bin Abdulaziz Al Saud passed away sent oil prices sharply higher on Friday, but analysts dismissed the move as a knee-jerk reaction, noting the recent trend remains intact. "It`s not an extraordinary move in oil prices, given the recent volatility and turmoil in the oil markets," said Michael Levi, senior fellow for energy and the environment at the Council on Foreign
Relations (CFR). "Oil prices have dropped 60 percent over the past six months - compared to that,[today`s move]is not earth shattering," he said. Nymex WTI crude oil futures rose as much as 2.5 percent to USD 47.76 after the news broke but trended back down to USD 47.25 by mid-day in Asia. Brent crude also rose over 2.5 percent to a high of USD 49.80 shortly after opening and was recently trading at USD 49.55. "It`s just the markets pricing in any potential uncertainty over the succession. Prices will settle back down: current levels may hold for a couple of weeks, or whenever the new king comes out and confirms the current policy will be continued," said Phillip Futuresinvestment analyst Daniel Ang. Uncertainty tends to fuel speculation, which in turn drives up prices, according to Takayuki Nogami, senior economist at government-run Japan Oil, Gas and Metals National Corporation (JOGMEC). He believes prices will trend back down once the markets digest the news; the fundamentals of the oil markets - over-supply in a slowing global economy - won`t change, he said. "[And] the succession in Saudi Arabia itself will be about continuity - in Saudi Arabia, the king makes policy decisions in consensus with other royal family members," he said. Saudi Arabia led OPEC`s decision to maintain its production levels on November, triggering a further collapse in oil prices. Oil prices have plunged more than 50 percent since mid-2014, with Brent at USD 48.52 a barrel at Thursday`s close, and Nymex crude at USD 46.31. Still, the real succession is unclear, according to CFR`s Levy. Salman is 79 and no one has any good visibility on how the handover of power to the next generation is going to play out, he said. Salman on Friday appointed his half-brother Muqrin as his crown prince and heir. Bigger, non-Saudi risks lurking Analysts remain divided on where prices are headed. "Oil prices are bottoming out and are headed upwards," according to Phillip Futures` Ang. He pointed out that crude futures have stayed below USD 50 for almost two weeks and sees that as a sign that prices are consolidating. He expects prices to recover to around USD 60 to USD 70 towards the middle of the year. However, JOGMEC`s Nogami doesn`t see any upside yet and expects oil to stay below USD 50 a barrel, in the USD 40 range, for a while. Price catalysts will come from outside Saudi Arabia, he said. For now, "it doesn`t look like other Organization of the Petroleum Exporting Countries will go their own way (and against Saudi Arabia) and reduce production because most of them need the revenues," he said. "The oil markets show no sign of settling down," said CFR`s Levi, citing a laundry list of "medium-sized" potential risks in Nigeria, Venezuela, and Russia. "Iran, and the nuclear issue, always remains a question mark" too, he added.
