NEW YORK — The oil market reacted swiftly to the death of the king of Saudi Arabia, the world’s largest exporter of petroleum.
Crude oil was two percent higher immediately after the news broke, trading just above $47 a barrel.
King Abdullah bin Abdulaziz al Saud’s health had been deteriorating in recent weeks, according to the state-run Saudi Press Agency. He was king of Saudi Arabia since 2005 and celebrated his 90th birthday in August.
The leadership transition should be smooth. His half-brother Prince Salman bin Abdulaziz al Saud will assume the throne, Saudi state television reported.
Saudi Arabia has 16 percent of the world’s known oil reserves, according to the U.S. Energy Information Administration. The country is widely seen as the leader of OPEC and has a large influence on energy prices and political stability in the Middle East.
But oil has fallen over 50 percent since the summer. Crude traded over $100 as recently as July and now trades below $50.
OPEC’s decision, led by Saudi Arabia, on Thanksgiving Day to not scale back production accelerated oil’s plunge.
Saudi officials have repeatedly said the nation will not cut oil production because they don’t want to lose market share. It’s unlikely that the new king will alter that stance.
“I don’t anticipate the Kingdom to make any dramatic changes in its oil policy in the short term,” said Fahad Nazer, a former political analyst at the Embassy of Saudi Arabia in Washington, DC.
Some experts believe the Saudis, at least to some extent, have welcomed falling oil prices as a way to slow the rise of America’s shale oil production boom.
Last week Saudi Prince Alwaleed said oil will never return to $100 again and that the price crash will allow Saudi Arabia to see “how many shale oil production companies run out of business.”
U.S. shale oil companies and related industries have already announced layoffs and cutbacks in spending.
At the same time, Saudi Arabia depends heavily on oil revenues to fund its government. Oxford Economies estimates the country will have negative economic output this year if oil continues to stay at or below $50 a barrel.
The United States imports about a million barrels of oil a day from Saudi Arabia. Only Canada provides more oil to the U.S.