Oil Prices Surge After Saudi King's Death

Oil rose after the death of King Abdullah of Saudi Arabia, the biggest
producer in the Organization of Petroleum Exporting Countries.

Futures rallied as much as 3.1 percent inNew York and 2.6 percent
inLondon after the Saudi royal court announced the death in a
statement. Crown Prince Salman bin Abdulaziz will succeed Abdullah on
the throne. The kingdom, the world's largest crude exporter, led
OPEC's decision to maintain its oil-production quota at a meeting in
November, exacerbating a global glut that's driven prices lower.

"The passing of King Abdullah is going to increase uncertainty and
increase volatility inoil prices in the near term,"Neil Beveridge, a
Hong Kong-based analyst at Sanford C. Bernstein& Co., said by phone.
"I wouldn't expect a change in policy in the near term to be known,
but the passing comes at a challenging time for Saudi Arabia."

Oil Prices

Oil fell almost 50 percent last year as the U.S. pumped at the fastest
rate in more than three decades and OPEC resisted calls to cut
output.Crude stockpilesin the U.S., the world's biggest oil consumer,
rose by 10.1 million barrels through Jan. 16, the Energy Information
Administration reported on Thursday. That was the biggest volume gain
since March 2001.

Policy Uncertainty

WestTexas Intermediate for March delivery climbed as much as $1.45 to
$47.76 a barrel in electronic trading on theNew York Mercantile
Exchange and was at $47.05 at 3:44 p.m. Singapore time. The contract
dropped $1.47 to $46.31 on Thursday. Total volume was about 41 percent
above the 100-day average. Prices have decreased 3.3 percent this
week.

Brent for March settlement advanced as much as $1.28 to $49.80 a
barrel on the London-based ICE Futures Europe exchange. The European
benchmark crude traded at a premium of $2.36 to WTI, compared with
$1.04 on Jan. 16.

King Abdullah oversaw a fivefold expansion in the size of the Arab
world's biggest economy and met the Arab Spring with a mixture of
force and largesse. He died after almost a decade on the throne. He
was born in 1924.

"The market is reacting bullishly to this news because it may usher in
a period of uncertainty as far as Saudi policies going forward as new
leadership takes over," saidAndy Lipow, the president of Lipow Oil
Associates LLC, an energy consultant in Houston, Texas.

Market 'Tensions'

King Salman, in his previous capacity as crown prince, read a speech
on behalf of the monarch on Jan. 6 that confirmed the continuity of
Saudi oil policy in the face of market "tensions" caused by slow
growth in the global economy.

A key indicator will be whether Salman, 79, retains the oil minister,
Ali Al-Naimi, who has driven decision-making since 1995. Al-Naimi, who
turns 80 this year, has said he'd like to devote more time to his
other job as the chairman of the science and technology university
named after the late sovereign.

"There's the possibility thatAli al-Naimi could be replaced as oil
minister," saidPhil Flynn, a senior market analyst at the Price
Futures Group inChicago. "The biggest concern is uncertainty. But,
because the world is awash in oil, the reaction was muted."

The king's death also raises the question of whether instability
across theMiddle East will intensify, according to Flynn. King
Abdullah had "done a good job trying to subdue" insurgents in the
country, and Saudi Arabia may face increasing pressure from them now
that he's gone, he said.
--bloomberg