Market Analysis

Oil Prices Rise Amid Uncertainty Over Iran President's Fate and Saudi King's Health

Amos Simanungkalit · 20 May 20241.4K Views

Oil prices extended their gains on Monday, climbing amid political uncertainty in major producing countries following concerns over the Iranian president's fate after a helicopter crash, and the Saudi crown prince cancelling a trip to Japan due to the king's health issues.

Brent crude rose by 32 cents, or 0.4%, to $84.30 a barrel by 0240 GMT, marking its highest level since May 10. Meanwhile, U.S. West Texas Intermediate (WTI) crude increased by 5 cents to $80.11 a barrel, after reaching $80.23 earlier, the highest since May 1.

Iranian officials reported that a helicopter carrying President Ebrahim Raisi crashed on Sunday. Hopes are diminishing that Raisi and Foreign Minister Hossein Amirabdollahian survived the crash in mountainous terrain and icy weather, as search teams located the wreckage.

In a separate development, Saudi Crown Prince Mohammed bin Salman postponed his visit to Japan, scheduled to start on Monday, due to King Salman's health issues, according to Japan's Chief Cabinet Secretary Yoshimasa Hayashi. The 88-year-old King Salman is set to undergo treatment for lung inflammation, as reported by Saudi Arabia's state news agency on Sunday.

IG Markets analyst Tony Sycamore commented on the situation, noting that WTI prices might climb further towards $83.50 after rising above the 200-day moving average of $80.02. Sycamore cited the recent Chinese property measures, including relaxing mortgage rules and buying unsold homes, as additional reasons for the potential price increase.

Last week, Brent recorded a 1% rise, its first weekly gain in three weeks, while WTI rose by 2%, buoyed by improved economic indicators from the U.S. and China, the world's largest oil consumers. Despite the regional volatility, oil prices showed only modest movement.

Warren Patterson, head of commodities strategy at ING, suggested that without new catalysts, the oil market is likely to remain rangebound until there is clarity on OPEC+ output policy. The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, are scheduled to meet on June 1.

Patterson also noted that the market seems increasingly indifferent to geopolitical developments, possibly due to the significant spare capacity OPEC holds. Energy analyst Saul Kavonic from MST Marquee added that the market is accustomed to Crown Prince Mohammed Bin Salman's leadership in the energy sector, and continuity in Saudi strategy is expected despite the king's health issue.

In the United States, the recent drop in oil prices allowed Washington to purchase 3.3 million barrels at $79.38 a barrel to replenish its Strategic Petroleum Reserve after a significant sale in 2022. Additionally, signs of easing inflation in the U.S. last week raised expectations of interest rate cuts, potentially decreasing the dollar's value and making oil cheaper for holders of other currencies.