Saudi King's Speech Friday Could Move Oil Markets

After a near 3.5 percent jump in oil prices Thursday, traders are watching Saudi Arabian King Abdullah's address to his people Friday as a possible catalyst for crude prices.

Saudi King Abdullah bin Abdul Aziz al-Saud
Hassan Anmar | AFP | Getty Images
Saudi King Abdullah bin Abdul Aziz al-Saud

The royal court said in a statement that King Abdullah will use the 7 a.m. ET address to issue a number of decrees, in his first appearance since returning to the country after three months of medical treatment in the United States.

Oil traders are watching the king's comments with special interest because of the Saudi government's decision to send troops into Bahrain to help quiet protests there. Headlines from tiny Bahrain, where opposition leaders were arrested Thursday and Shiite neighborhoods sealed off, helped send oil higher Thursday.

In late trading, oil continued to rise and was above $103 per barrel, after the United Nations Security Council endorsed a no-fly zone over Libya.

"It's not Bahrain in particular because it's not a big oil producer, but it is a proxy more importantly of what could happen in the kingdom and that's a concern. The real fear is you have a situation like you have in Bahrain right now happen in Saudi Arabia, as far as protests and crackdowns," said Ray Carbone, president of Paramount Options.

Saudi Arabia is the world's largest oil producer, and it has vowed to help make up any production lost in Libya, where Muammar Gadaffi is fighting to retain control. Last week, the world watched whether protests would break out in Saudi Arabia, after protesters threatened a "day of rage." The mass protests never materialized.

"It might be announcements of reform and against demonstrations. It's possible he's going to include some incentives — some good news and some bad news," said Shibley Telhami, a professor at the University of Maryland. King Abdullah did unveil $37 billion in handouts, in an effort to help the poor and ease social pressures when he returned last month.

"Who knows, he might accuse Iran of meddling," said Telhami. Telhami said in recent days Saudi media has been playing up a role by Iran in the unrest in Bahrain, where protests have raged against the Al Khalifa royal family for weeks.

However, it would be highly unusual for the king to mention Iran himself, said Telhami, who holds the Anwar Sadat Chair for Peace and Development at the university.

"One thing the king has been very shrewd about is typically when it comes to accusing Iran directly; he typically doesn't do it himself. He usually has that happen in a subtle way and has other people do it. If he was going to do it directly, it would be a big change," said Telhami.

U.S. officials do not believe the Iranian influence is as strong in Bahrain as Saudi officials believe.

Carbone said the energy trading world will be watching.

"He could certainly move the market by what he says ... First, it's what are the decrees he will issue. Then, the next question is what is the reaction to them. The guarantee is volatility in the oil market, no matter what he says," said Carbone.

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