U.S. oil futures surged Monday, marking their best single-session rally — on a dollar basis — in nearly a year, as the crude market was rattled by political disruptions over the weekend in Saudi Arabia that saw officials and members of the royal family detained.
December West Texas Intermediate crude CLZ7, -0.31% on the New York Mercantile Exchange closed up $1.71, or 3.1%, to $57.35 a barrel, marking its highest settlement since June 30, 2015, and its sharpest daily gain, in dollar terms, since Nov. 30, 2016, according to FactSet.
January Brent crude LCOF8, -0.64% gained $2.20, or 3.5%, to end at $64.27 a barrel. For Brent, it was the biggest dollar gain in a single session since Dec. 1, 2016, and the largest daily percentage increase since Sept. 25, according to WSJ Market Data Group.
Oil prices have been in a decided uptrend, climbing to the best levels in more than two years on Friday, partly on hopes this year’s Organization of the Petroleum Exporting Countries production-cap deal will be extended, perhaps through 2018. OPEC meets at the end of the month to make a decision on extending the global production agreement.
However, crude added to its recent rise amid news of a wave of arrests of Saudi Arabian princes, businessmen and government ministers in what has been billed as an anticorruption crackdown but is seen by some as a consolidation of power by Crown Prince Mohammad bin Salman. Saudi Arabia is among the world’s top producers of oil and OPEC’s most influential member.
Phil Flynn, senior market analyst at Price Futures Group, said recent signs of a reduction in supplies and a cooling of production of U.S. shale producers are helping to foster a bullish environment for crude prices, breaking U.S. oil out of a range between $50 and $55 a barrel.
“The glut of oil for all intents and purposes is gone and we are in a tighter [supply] situation” Flynn said. “That has set the stage for the rally we are having today” he said.
“The risk spotlight has shifted to Saudi Arabia as Crown Prince Mohammed bin Salman works to consolidate power,” wrote Robbie Fraser, commodity analyst at Schneider Electric, in a research note Monday.
On Friday, U.S. oil-rig count data from Baker Hughes BHGE, +8.79% showed that the number of active U.S. rigs drilling for oil fell by eight to 729 last week, marking the fourth weekly decline in the past five weeks. That decline comes amid near-record demand for oil in the U.S.
On Saturday, Saudi Arabia’s oil minister, Khalid al-Falih said there is still a “significant amount of work to do” to bring down global oil supply, after he met with Russian, Uzbek and Kazakh oil ministers, according to CNBC.
Beyond internal strife, moves in Saudi Arabia also come amid elevated tensions between Riyadh and Middle Eastern neighbors, including Yemen, after a Saudi prince was killed Sunday in a helicopter crash near the border. The cause of the crash is unknown.
On Saturday, Saudi Arabia intercepted a ballistic missile east of Riyadh’s main airport after it flew more than 500 miles from Yemen. It was reportedly fired by Houthi rebels, seen by Saudi Arabia as proxies of Iran.
While developments in Saudi Arabia are unlikely to imperil the continuing output agreement led by OPEC, RBC’s global head of commodity strategy, Helima Croft, said the bigger question in the medium term is the plan for king-in-waiting Mohammad bin Salman. The crown prince, known popularly as “MBS,” was installed by King Salman less than five months ago — a move itself that came as a shock to some in the kingdom.
“We expect no immediate changes in oil policy. MBS seems strongly committed to anchoring the OPEC agreement deep into 2018 and moving ahead with the Aramco sale,” said Croft in a note to clients on Sunday.
The initial public offering of an up-to-5% stake in state-owned oil company Saudi Aramco is expected to take place in 2018. It has been described as one of the world’s biggest-ever IPOs.
Among energy products Monday, December gasoline RBZ7, -0.63% gained 3.66 cents, or 2%, to $1.83 a gallon. December heating oil HOZ7, -0.53% ended up 5.56 cents, or 3%, at $1.9422 a gallon.
Natural gas for December delivery NGZ17, +0.19% surged 15 cents, or 5%, to $3.134 per million British thermal units, marking its biggest single-session jump since Oct. 30 and highest settlement since Sept. 18.
— Biman Mukherji contributed to this article