Baku, Azerbaijan, Jan. 23
By Aygun Badalova - Trend:
Oil prices will recover regardless of Saudi Arabia's royal succession, Julian Jessop, Head of Commodities Research at British economic research and consulting company Capital Economics believes.
"The death of Saudi King Abdullah bin Abdulaziz has prompted speculation of a shift in the Kingdom's oil policy away from protecting market share towards defending prices," Jessop said in a report, obtained by Trend.
The analyst does not believe that it makes much difference who is nominally in charge of the country. Crucially, the fundamentals of supply and demand suggest that prices are set to recover anyway, he said.
Jessop mentioned that King Abdullah has been described as the "architect" of the current Saudi policy.
His successor, King Salman, the analyst believes, may be more conservative on social issues but there is no good reason to believe he will make any major changes on oil policy.
"Indeed, King Salman is 79 himself, and unlikely to challenge the status quo. Saudi oil policy is, in any event, largely determined by technocrats. The Kingdom's wealth and huge oil reserves allow it to look beyond the current weakness in prices and take a longer view," Jessop said.
More importantly, there are other, better reasons to expect oil prices to stage a gradual recovery, which itself will reduce the pressure on Saudi Arabia to change its stance, he believes.
King Abdullah died at the age of 90 on Friday and his 77-year-old half brother, Salman, succeeded him. The king reportedly died at hospital, where he had been receiving medical treatment for several weeks.
The Saudi king's death has raised concerns about the future of the oil-rich country in the face of anti-government demonstrations.
Saudi Arabia is the world's largest holder of crude oil proved reserves and was the largest exporter of total petroleum liquids in 2013. Saudi Arabia has 16 percent of the world's proved oil reserves, is the largest exporter of total petroleum liquids in the world, and maintains the world's largest crude oil production capacity, according to the US Energy Information Administration (EIA). The country had approximately 266 billion barrels of proved oil reserves as of January 1, 2014.
Petroleum exports accounted for 85 percent of total Saudi export revenues in 2013, according to OPEC's data.
Jessop's report said the earlier slump in prices is starting to constrain supply: the number of active rigs in the US has begun to dip, and many new projects elsewhere have been abandoned or postponed.
"What's more, the latest global business surveys suggest that economic activity is picking up again at the start of 2015. This should ease fears about demand. We therefore continue to expect the price of Brent to return to $60 per barrel (from around $49 today) by the end of this year," said the report.
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Aygun Badalova is Trend Agency's staff journalist, follow her on Twitter: @AygunBadalova