Oil Prices Spike on News of King Abdullah’s Death

Stockbyte/Thinkstock(NEW YORK) — Following the news of King Abdullah’s death on Thursday, crude oil spiked 2.5 percent.

Oil prices have fallen by half in the past year, dropping 3 percent earlier on Thursday before the death of the 90-year-old leader of Saudi Arabia was announced.

Saudi Arabia is now the world’s second-largest energy producer, behind the U.S., which became No. 1 this year. The Saudis have a great amount of control over where world energy prices go. They’ve been continuing to produce large amounts of oil, even as prices are tanking, which in turn has driven prices lower.

Many analysts think King Abdullah’s half-brother and successor, Price Salman, will keep the same policies in place, but the market is reacting anyway, expecting him to face growing pressure.

Why would the Saudi’s intentionally drive oil prices lower when oil is fundamental to Saudi Arabia’s economy?

Reasons might include to weaken Iran and to drive some of the competition out of business.

Still it’s a risky proposition for Saudi Arabia’s economy. Some 80 percent of government revenue and 40 percent of GDP come from oil. And it’s risky for its people, who rely on the government to subsidize education, healthcare, etc., and provide jobs.

Saudi Arabia is forecasting its biggest deficit ever this year, $39 billion — and it’s because of oil.

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