Do changes in the Saudi Arabian monarchy promise tumult for North American oil prices?

By Laura Bohnert
Since the death of Saudi Arabia’s King Abdullah, there has been much concern over the uncertain future of global oil prices, but how much influence will this shift in the monarchy have on the North American market?
Abdullah ibn Abdulaziz, King of Saudi Arabia, passed away on the evening of January 22, 2015, and the announcement of his death was marked by an immediate jump in oil prices.
Following the announcement of the king’s passing, the benchmark US crude futures contract rose by 71 cents to $47.02/barrel while Brent crude jumped 92 cents to $49.42/barrel and has continued to increase by 13 per cent over the month of February.
The rise, while ultimately small, formed as a reaction to the uncertainty surrounding Saudi Arabia’s oil production with this sudden shift in the monarchy — as well as the uncertain future of the monarchy itself.
Abdullah was 90 when he passed away due to illness. He had been admitted to hospital on December 31 after being diagnosed with pneumonia. Abdullah’s 79-year-old half-brother, Prince Salman, Saudi Arabia’s new monarch, who has assured us that no changes will be made to the current oil policy, has been reported to be in poor health, as well.
The uncertainty of the Saudi monarchy has led to apprehension within the oil sector.
The recent drop in oil prices — a drop which was unexpectedly observed within the US as well as Canada — was a direct result of Abdullah’s policy.
Saudi Arabia’s oil production is directly tied to approximately 40 per cent of global oil supply; it holds the largest production rate of any state within the 12-member OPEC (Organization of Petroleum Exporting Countries), and is the largest exporter of crude oil in the world. Last month alone, Saudi Arabia produced 9.5 million barrels of oil per day.
Saudi Arabia’s continued high output, emerging when oil demand dropped and the market became oversupplied, forced the dramatic drop in the price of oil. It is largely believed that Abdullah’s ambition was to allow the decline in oil prices to push US and Canadian high-cost oil producers out of the market, securing Saudi’s market share.
Abdullah’s death, however, leaves uncertainty in the wake of his ambition. While his immediate predecessors have assured us that no changes to policy will be made, any uncertainty within the monarchy simply lends itself to more uncertainty and volatility with respect to oil prices. And, as current prices continue to rise, it seems clear that the big purveyors aren’t willing to risk the uncertainty — or they are taking advantage of the current apprehension, their opportunity to push their prices a little higher.