Oil hits 2-year high as Saudi graft crackdown raises prospect of production cuts

The price of oil has risen to its highest point in two years, as Saudi Arabia's heir to the throne consolidates power by arresting rival princes, government officials and military leaders as part of an anti-corruption probe.

West Texas Intermediate rose by $1.71 to settle at $57.35 US a barrel in New York. The North American oil benchmark hasn't been that high since June 2015.

The European oil benchmark, Brent Crude meanwhile, was trading up more than $2 at $64.22 US a barrel.

The 32-year-old crown prince, Mohammed bin Salman, ordered the rounding up of several influential other princes, including Prince Alwaleed bin Talal, one of the world's richest men with a net worth of $18 billion as part of an anti-corruption crackdown.

• Billionaire Saudi prince among dozens arrested in sweep

Technically, the focus of bin Salman's purge is on his political rivals, but the move is also having a major impact on oil prices, since he is strongly in favour of harsh production cuts implemented by OPEC last year and set to be debated again and the cartel's meeting later this month.

"What appears to have been a preemptive centralization of power helped to lift front-month West Texas tea prices rose toward the $56 mark, with traders expecting an extension of oil production cuts into next year," Karl Schamotta with Cambridge Global Payments said.

The arrest of Alwaleed bin Talal was especially notable. He has become the most prominent member of the Saudi royal family in the West, due to his significant investment in companies like Twitter, Apple, Lyft, Citigroup, and the Four Seasons hotel chain.

• OPEC says it is winning the battle against cheap oil with cuts

But he wasn't the only prominent name detained. In total, 11 powerful princes, four sitting ministers and at least 38 former ministers were rounded up over the weekend, and the private airport in Riyadh was closed to prevent anyone from leaving the country.

"Crown Prince Mohammad Bin Salman's Saturday night purge represents a stunning political development in Saudi Arabia and a shot across the bow at the old establishment," said Helima Croft, global head of commodity strategy at RBC Capital Markets. "The fact that private airstrips were closed on Saturday also does suggest that more high-level arrests may be looming."

• From June 2017: Oil prices dips back to $40
• From September 2017: Oil punches above $50 as demand rises

A director of the nationalized oil firm Aramco and a member of the royal council overseeing the world's biggest oil
exporter were arrested as part of the sweep. The Saudi government is preparing to sell off a portion of Aramco in an IPO next year, part of the bin Salman's plan to overhaul the economy and create new jobs outside the oil industry.

But while the moves have pushed up oil in the short term, bin Salman's plan to diversify the country's economy may not be good news for oil prices over the long term. "There may be a question mark over the role that conventional fossil fuels will play in the modernization plan as he is clearly focused on all things disruptive," Croft said.

There's more than just events in Saudi Arabia pushing up oil, however. On Friday, oil firm Baker Hughes reported there were 729 working oil rigs in the U.S. last week, a figure that fell by eight rigs in a week. That's the biggest jump down since May of last year. That's a sign of dwindling supply, and another reason for higher crude prices.

Rob Mark, a portfolio manager with Raymond James, told CBC News in an interview that oil prices have been undervalued for a while.

'We're finally getting some reality in terms of the risks in the world," he said. "Potential for instability in Saudi Arabia is bidding up the price."