Bloomberg August 1, 2005
Oil Climbs Above $61 as King Fahd's Death Raises Supply Concern
By Mark Shenk
Aug. 1 (Bloomberg) -- Crude oil rose above $61 a barrel in New York after the death of Saudi Arabia's King Fahd, ruler of the world's largest oil exporter, heightened concern about supplies following refinery disruptions in the U.S. and Europe.
The king's half-brother, Abdullah bin Abdulaziz al-Saud, who assumed day-to-day power after Fahd's 1995 stroke, becomes monarch. His half-brother, Prince Sultan bin Abdulaziz, Minister of Defense, becomes Crown Prince. The kingdom is battling al- Qaeda, which has killed almost 100 foreigners in the country during the past two years.
``This is not a surprise but there are still reasons for concern,'' said Bill O'Grady, assistant director of market analysis at A.G. Edwards & Sons in St. Louis. ``Abdullah and Sultan are both about 80, so we can't expect them to sit on the throne after five years. This lays bare the fact that there's a succession problem and it's an opportunity for al-Qaeda to make trouble.''
Crude oil for September delivery rose 98 cents, or 1.6 percent, to $61.55 a barrel at 10:39 a.m. on the New York Mercantile Exchange. Prices touched $61.60, the highest since July 8. Oil is up 40 percent from a year ago. Futures reached a record $62.10 a barrel on July 7.
In London, the September Brent crude-oil futures contract rose 97 cents, or 1.6 percent, to $60.34 a barrel on the International Petroleum Exchange. Brent touched $60.70 a barrel on July 7, the highest since the contract was introduced in 1988.
`Dinosaur State'
``Saudi Arabia is a dinosaur state,'' said Anthony Harris, formerly the U.K.'s ambassador to the United Arab Emirates, Saudi Arabia's Persian Gulf neighbor. ``It can't be good for a country to be ruled by leaders in their 80s,'' Harris said.
Crown Prince Abdullah was born in 1924, according to the Web site of the Saudi embassy in Washington. He's been heir- apparent since his half-brother became king and previously was commander of the National Guard, a tribal force loyal to the al- Saud family. Abdullah will be crowned Wednesday, a Royal Court spokesman said on state TV.
Sultan was born in 1928, according to GlobalSecurity.org, an Alexandria, Virginia-based organization that tracks global security issues.
`Only Continuity'
``I don't expect any change in policies, only continuity,'' Prince Turki al-Faisal, Saudi Arabia's ambassador to the U.S., told reporters at a meeting in London.
Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world's oil. The kingdom sits on about 25 percent of the world's proved oil reserves.
``The death of King Fahd is not going to have a material impact on oil production,'' said Marshall Steeves, an analyst with Refco Inc. in New York. ``This has been in the offing a long time and the transition has gone smoothly.''
Economic growth in the two largest oil consumers, the U.S. and China, has pushed prices to records. U.S. manufacturing accelerated for a second straight month in July as gains in both orders and production signaled that factories may add more to economic growth this quarter, a private survey showed. The Institute for Supply Management said today that its factory index rose to 56.6 in July, the highest this year.
``Until we have solid evidence of a weakening of the U.S. or Chinese economy there will not be a significant lowering of prices,'' O'Grady said.
Prices rose last week on concern that last week's fire at BP Plc's Texas City, Texas, refinery will limit supplies of gasoline and other fuels. The 460,000-barrel-a-day refinery is BP's largest in North America.
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