According to industry analysts, the ongoing purge in Saudi Arabia is likely to have little immediate impact on oil prices since the Crown Prince is committed to maintaining a continuance to existing policies, including cutting down the glut in the global oil and continuing Aramco’s sale.
On Monday oil prices hit their highest levels since July 2015 with market trends showing increasing signs of tightening.
Early on Monday, Brent futures LCOc1, the international benchmark for oil prices, hit $62.44 per barrel, the highest level since July 2015 while U.S. West Texas Intermediate (WTI) crude CLc1 hit $56.00 per barrel in early trading.
Incidentally, WTI is a third above its 2017 lows.
The peaking of oil prices comes midst Saudi Arabia’s crown prince, Mohammed bin Salman, tightening his grip on power by arresting investors, royals, and ministers, including Alwaleed bin Talal, a very prominent business billionaire, and Prince Miteb bin Abdullah, the head of the National Guard.
As per RBC Capital Markets, although the “purge represents a stunning political development in Saudi Arabia,” it expected “no immediate changes” in the oil policy of Saudi Arabia, which is the world’s biggest exporter of crude oil.
“MBS seems strongly committed to anchoring the OPEC agreement deep into 2018 and moving ahead with the Aramco sale,” said RBC in reference to Mohammed bin Salman who is also known as MBS.
According to traders, there are ongoing signs of tightening market conditions in the oil market.
Incidentally, U.S. energy companies have cut 8 oil rigs last week, to 729, in what has been the biggest reduction since May 2016.
The decline in U.S. drilling activity comes at a time when the Organization of the Petroleum Exporting Countries (OPEC) and a non-OPEC group lead by Russia, have pledged to hold back nearly 1.8 million barrels per day (bpd) in oil production in order to reduce the global glut in the oil pool.
Although this pact to withhold supplies runs up to March 2018, there is growing consensus to extend the deal.
According to analysts, there is a strong demand for oil despite a tightening in the market.
“Synchronous global economic growth and new supply disruptions are creating the most constructive oil price environment since … 2014,” said Barclays bank while adding, it was raising its average Q4 Brent price forecast by $6 per barrel to $60 per barrel.
”The surprisingly strong macro backdrop and the accelerated inventory drawdown mean that these slightly higher price levels are likely to be sustained through Q1 of next year,” said Barclays as it raised its full-year 2018 forecast by $3 per barrel to $55 per barrel.