Oil price rises on supply cuts and political tensions in Saudi Arabia

Oil prices rose nearly 1 per cent on Thursday, supported by supply cuts by major exporters as well as continuing concern about political developments in Saudi Arabia. 

Brent crude oil was up 59 cents or 0.9 per cent to $64.08 a barrel by 11:30 am (1630), still close to Tuesday's intra-day high of $64.65, which was the highest since June 2015. 

US light crude was up 46 cents or 0.8 per cent at $57.27, just shy of this week’s more than two-year high of $57.69 a barrel. 

Prices got a boost earlier this week from a crackdown on corruption by the Saudi crown prince, who says he is determined to remodel his conservative country into a modern state no longer dependent on oil. 

Analysts said his arrival to the throne would add to tensions between Saudi Arabia and several countries including Iran, Lebanon and Yemen. 
 

Meanwhile, On Thursday Lebanon said Saad al-Hariri is held in Saudi Arabia, from where he resigned as prime minister, two top Lebanese government officials said, amid a deepening crisis pushing Lebanon onto the frontlines of a power struggle between Saudi Arabia and Iran. 
 

A third source, a senior politician close to Saudi-allied Hariri, said Saudi Arabia had ordered him to resign and put him under house arrest. A fourth source familiar with the situation said Saudi Arabia was controlling and limiting his movement.

Soon after Saudi Arabia advised its nationals to leave Lebanon, further fueling fears of a heated confrontation with the Iran in a country long known for being a battleground for proxy wars in the Middle East. Lebanese bonds fell.

Saudi citizens were also advised not to travel to Lebanon from any international destination, the official Saudi Press Agency reported.
 

Several traders said prices got a boost from unconfirmed rumors that Saudi King Salman would relinquish the throne to his son Crown Prince Mohammed Bin Salman. Similar rumors hit the market in September and October but never materialised. 

Still, traders expressed caution that the rally that has pushed up Brent by more than 40 per cent since July may have run its course. The rally has largely been driven by crude output cuts from producing nations led by the Organization of the Petroleum Exporting Countries and Russia. 
 

"Prices may have reached a short-term peak," said Fawad Razaqzada, analyst at futures brokerage Forex.com. 

"It doesn't matter how bullish the fundamentals are ... when an asset goes vertical there is always room for a pullback and consolidation of recent price moves," said Greg McKenna, chief market strategist at brokerage AxiTrader. 

OPEC will discuss output at a meeting on Nov. 30, and is expected to extend the limits beyond their expiry in March 2018.

If that happens, some said the rally could still have legs. 

"With the OPEC/non-OPEC deal extension beyond March 2018 a certainty, prices may become stronger and temporarily reach the $65-$70 per barrel range in 2018," said energy consultancy FGE. 

US crude production rose 67,000 barrels per day to 9.62 million bpd, the highest for decades. 

Output looks set to rise further. Texas issued 997 oil and gas drilling permits last month, up nearly 17 percent versus the same month a year ago.