- The Washington Times - Monday, August 1, 2005

ASSOCIATED PRESS

Oil prices jumped $1 a barrel to a new high yesterday after the death of Saudi Arabia’s King Fahd raised concerns about the kingdom’s long-term political stability. The rally, which faded late in the day, also stemmed from traders’ skittishness about U.S. refinery glitches and Iran’s nuclear program.

Saudi Arabia’s oil policy is not expected to change now that power has formally shifted to Fahd’s 81-year-old brother, the de facto leader for the past decade. However, with oil consumption rising around the world and only a limited amount of excess production capacity available, energy traders easily are put on edge by a change in the weather in an oil-pumping region, let alone a transfer of authority within the world’s biggest oil producer.

“The market is hypersensitive to facts, rumors and noise because the supply cushion is gone,” said Larry Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation.

Light, sweet crude for September delivery briefly rose as high as $62.30 a barrel on the New York Mercantile Exchange, then retreated to settle at $61.57, a rise of $1. The previous closing high on Nymex was $61.28, set July 6, while the previous intraday high was $62.10.

Oil prices are still well below the inflation-adjusted high of about $90 a barrel set in 1981.

Adding to the oil market jitters was the imminent resumption of uranium reprocessing in Iran. It is one step below uranium enrichment, which is necessary for the development of nuclear weapons. Iran suspended enrichment of uranium in November under international pressure, but the country maintains that it has the right to resume the activities.

Traders also kept an eye on refinery operations in the United States, where the rate of gasoline and heating oil output has fallen in recent weeks because of hurricanes in the Gulf of Mexico. Last week, two refinery fires — one in Texas and one in Louisiana — stifled production, albeit to a limited extent.

“Any excuse the bulls have to take it [the price of oil] higher, they’re going to use,” said Peter Beutel, president of Cameron Hanover Inc. of New Canaan, Conn., which publishes a daily newsletter on energy market trends.

King Fahd died early yesterday after extensive hospitalization, the Saudi royal court announced. His brother, 81-year-old Crown Prince Abdullah, was appointed the new monarch in a smooth transition that had been years in the making. King Abdullah immediately named his half brother, Defense Minister Prince Sultan, 77, as crown prince and successor.

Saudi Arabia’s ambassador to Britain, Prince Turki bin al-Faisal, said the nation would not change its policy on oil or other matters.

“It’s going to be business as usual inside Saudi Arabia,” Mr. Goldstein said. The longer-term concern is that each successive transition of power in Riyadh will become trickier, he said.

Antoine Halff, director of global energy at Eurasia Group in New York, described the oil market’s response to King Fahd’s death as “a bit of a knee-jerk reaction,” but not an entirely surprising one given Saudi Arabia’s importance to the global economy and the fact that “its political system is so opaque.”

The market will pay close attention now to how King Abdullah responds to any internal political and social opposition he faces as a result of his agenda of reform and the crackdown he has led on al Qaeda-linked militants.

Mr. Halff said he expected the buying triggered by the news out of Saudi Arabia to be short-lived, but that other factors in the market could keep prices high for months to come.

With daily global demand expected to average more than 84 million barrels a day and excess production capacity below 2 million barrels per day, traders’ fears about potential output disruptions also were sparked yesterday by the anticipated restart of uranium reprocessing in Iran.

Iran agreed late yesterday to a two-day delay in reopening its nuclear processing plant in Isfahan after receiving a request from the head of the United Nation’s atomic watchdog. Originally, the activity was to restart yesterday.

The United States says the Iranian nuclear program is designed to produce weapons, a contention that Iran denies. Friction between the two countries is worrisome to oil markets because the U.S. is the world’s largest consuming nation, while Iran is the second-biggest producer within the Organization of Petroleum Exporting Countries (OPEC).

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