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Tue 7 Nov 2017 09:15 AM

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Oil trades near 2-year high as Saudi upheaval spurs risk premium

Oil has gained more than 20 percent since the beginning of September on signs global supplies are tightening

Oil trades near 2-year high as Saudi upheaval spurs risk premium

Oil traded near the highest close in more than two years as political upheaval in top crude exporter Saudi Arabia reverberated through a market where prices were already elevated by signs of tightening supply.

Investors have piled into oil as a shake-up of the ruling elite in OPEC’s biggest producer was seen to consolidate power with Crown Prince Mohammed bin Salman, who backs extending the group’s output cuts aimed at clearing a global glut.

The purge also raised concern over instability in the kingdom, supporting a geopolitical-risk premium on crude that’s emerged with heightened tensions surrounding nations such as Iraq and Iran.

Oil’s gained more than 20 percent since the beginning of September on signs global supplies are tightening and the  Organization of Petroleum Exporting Countries and its allies may prolong their output deal past March. Fighting between the Iraqi government and Kurdish forces over a disputed oil-rich region had also boosted prices. The past weekend’s arrests in Saudi Arabia eliminated potential rivals to Prince Mohammed.

“The fact that the Saudi Crown Prince backs an extension to the oil cuts is one reason why the markets are looking at this as a bullish signal,” said Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore. “The key factor looking ahead is whether other producing countries take advantage of the higher prices and start pumping more, particularly US shale.”

West Texas Intermediate for December delivery was at $57.39 a barrel on the New York Mercantile Exchange, up 4 cents, at 12:05 p.m. in Hong Kong. Total volume traded was about 26 percent below the 100-day average. Prices rose $1.71, or 3.1 percent, to $57.35 on Monday, the highest close since June 2015.

Brent for January settlement fell 7 cents, or 0.1 percent, to $64.20 a barrel on the London-based ICE Futures Europe exchange. Prices rose 3.5 percent to $64.27 on Monday, the highest close since June 2015. The global benchmark crude traded at a premium of $6.59 to January WTI.

The arrests of princes and officials in Saudi Arabia were “merely the start of a vital process to root out corruption wherever it exists,” the nation’s attorney general said Monday. Local banks also began freezing the accounts of those implicated, according to two people with knowledge of the matter.

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