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Oil Prices Rise After Saudi King's Death

Oil Prices Rise After Saudi King's Death
Monday August 1, 12:17 pm ET
By Brad Foss, AP Business Writer
Oil Prices Climb After Saudi King's Death, but Official Pledges No Policy Changes

WASHINGTON (AP) -- Crude futures rose more than $1 a barrel on Monday after the death of Saudi Arabia's King Fahd, though the nation's oil policy is not expected to change now that power has formally shifted to his brother -- the de facto leader during the past decade.

Still, with oil consumption rising around the world and only a limited amount of excess production capacity available, energy traders are easily put on edge these days by a change in the weather, let alone a transfer of authority within the world's biggest oil producer.

"The market is hypersensitive to facts, rumors and noise because the supply cushion is gone," said Larry Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation.

Adding to the oil market jitters was the resumption of uranium reprocessing in Iran. It is one step below uranium enrichment, which is necessary for the development of nuclear weapons. Iran suspended enrichment of uranium in November under international pressure, but the country maintains that it has the right to resume the activities.

Traders also kept an eye on refinery operations in the United States, where two fires last week stifled production, albeit to a limited extent.

Light sweet crude for September delivery jumped by $1.23 per barrel to $61.80 in midday trade on the New York Mercantile Exchange. Front-month Nymex futures traded as high as $62.10 last month, reaching a settlement peak of $61.28 on July 6.

The ruler of the world's largest oil producer died early Monday after a prolonged hospitalization, the Saudi royal court announced. His brother, Crown Prince Abdullah, was appointed the new monarch in a smooth transition that had been years in the making. Abdullah immediately appointed his half brother, Defense Minister Prince Sultan, 77, as his crown prince and successor.

Saudi Arabia's ambassador to Britain, Prince Turki bin al-Faisal, said the nation wouldn't change its policy on oil or other matters.

"It's going to be business as usual inside Saudi Arabia," said Goldstein. The longer-term concern is that each successive transition of power in Riyadh will become trickier, he added.

With daily global demand expected to average more than 84 million barrels a day and excess production capacity below 2 million barrels per day, traders' fears about potential output disruptions were also sparked Monday by the restart of uranium reprocessing in Iran.

The United States claims the Iranian nuclear program is designed to produce weapons, a claim Iran denies. Friction between the two countries is worrisome on oil markets because the U.S. is the world's largest consuming nation, while Iran is the second-biggest producer within the Organization of Petroleum Exporting Countries.

September Brent futures at London's International Petroleum Exchange were up 93 cents at $60.30 a barrel.

In other Nymex trading, September heating oil futures climbed 4.88 cents to $1.725 per gallon, while gasoline futures surged 5.39 cents to $1.78 a gallon.

Associated Press Writer Edith Balazs in Budapest, Hungary contributed to this report.


LINK: http://biz.yahoo.com/ap/050801/oil_prices.html?.v=13