How oil price spike over saudi 'corruption purge' may increase us output

Xiaoyi Mu, a senior lecturer in Energy Economics at the University of Dundee, suggested that oil prices might soar if there was further instability in Saudi Arabia, but the likelihood of 

that is low, and even if it does it would lead to a boost in US shale oil production. "If the uncertainty in Saudi Arabia further escalates, oil prices might rise toward $70 per barrel.

But as things currently stand, the probability [of that] is low. Even if it rises temporarily above $70 perbarrel, it is unlikely to be sustained for a long period of time as the higher the

price will increase the production of US shale oil, which will effectively put a cap on oil prices," Mu said. Shale oil is a type of crude oil usually found in shale and limestone rock

deposits and extracted through hydraulic fracturing. SLIDE BACK "The upshot is that as concerns about geopolitical tensions fade, oil prices are likely to give back most of their

recent gains. Indeed, even though the spot price has jumped, longer-dated futures are lower than they were last week, reflecting concerns that higher prices now will encourage more supply in

 the future," Capital Economics, a UK-based economic research consultancy, believes. According to Capital Economics, it is confident about its year-end forecast of $57 per barrel for 

Brent. However, Adi Imsirovic, a teaching fellow in Economics at Surrey Energy Economics Centre (SEEC), argued that the new developments in the Middle East could create market risks and

drive up oil prices in the future. "Saudi leadership is pushing for change. There will be a lot of resistance to change. This is the source of market risk. Proposed changes are all

positive from an economic point of view," Imsirovic said. LONG-TERM IMPLICATIONS "Whilst the move [arrests of prominent Saudi figures] risks dealing a short-lived blow to the

economy and could build opposition towards the Crown Prince within the royal family, business elite and religious establishment, we doubt that there will be any change in the Kingdom’s oil

policy," according to Capital Economics. The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers will meet in Vienna on November 30 to discuss oil output

cuts agreed on in 2016. The potential further increase in oil price, buoyed by the situation in Saudi Arabia, may influence the upcoming negotiations but is unlikely to tank the deal.

"It would be more difficult for the member countries to comply with the agreement because the cost of restricting production would higher. But I think as things stand, they will be able

to reach an agreement in the November meeting," the senior lecturer in Energy Economics, Xiaoyi Mu,has concluded. Riyadh has been one of the driving forces behind the 2016 agreement,

intended to overcome the global oil glut.