APPEC: Oil markets view Saudi oil leadership change as bullish for prices, executives say

Oil markets are still grasping the full implications of the appointment of a new Saudi Arabian energy minister, but the general consensus is that it should boost oil prices in the near term, executives at the 35th Annual Asia Pacific Petroleum Conference said in Singapore.

The rationale is that newly appointed Prince Abdulaziz bin Salman will support Saudi Arabia’s ongoing policy to boost prices, especially ahead of Saudi Aramco’s imminent initial public offering.

“In the short term [the market impact] is unclear. General sentiment would be for a concerted effort to provide price support and see if he can be more successful than Al-Falih. The likely tightening of the market in the back end of this year could help” Chris Midgley, head of S&P Global Platts Analytics said on the sidelines of APPEC 2019.

“However, in my opinion, no one investing in Aramco should be looking at short term prices but rather evaluating the assets etc. based on long term oil prices which are likely to be lower than today,” Midgley said.

He said there is the possibility that Saudi Arabia and Aramco could change their strategy to focus on demonstrating production capability and move back to market share or balancing the market at a lower level, compared to the current price target of $70-$80/b.

“This of course would be bearish on oil prices but is not the basis right now,” Midgley added.

Over the weekend, Prince Abdulaziz replaced Khalid Al-Falih who was under pressure to boost oil prices and deliver on an IPO that has been delayed. Analysts have blamed weakening demand growth projections for the IPO delay.

“I don’t think Saudi policy is going to change much at all. I think it was inevitable as well given the ambitious reforms that MBS (Crown Prince Mohammed bin Salman) is pushing forward,” Adi Imsirovic, Research Fellow at The Oxford Institute for Energy Studies, said.

“If you actually look at the track record of the [previous] oil minister, there has been no IPO, the oil price isn’t where Saudi Arabia would like it to be and overall the economy is not doing that great either,” Imsirovic added.

“I think they will continue with the (production) cuts, they will want to have higher oil prices and have the IPO as soon as possible,” he said.

Edward Bell, director of commodities research at Emirates NBD, also said that in terms of production policy there’s no desire for change, and Saudi Arabia is likely to continue its course of production cuts.

“Is Saudi Arabia going to return to a market share targeting strategy? That is an eventuality that’s going to have to happen, but it’s not going to happen with the immediate change in leadership,” Bell said, adding that the change in the governance structure of Saudi Aramco is more of an indication that they want the IPO process to begin.

Al-Falih’s departure hasn’t caused as much discussion as the time when he replaced his predecessor Ali Al-Naimi, who was in favor of letting market dynamics determine prices and compete with US shale as opposed to actively balancing of the market.

But market participants said the appointment of Prince Abdulaziz, a member of the Royal family, as energy minister doesn’t mean that political risk has fully dissipated.

“There is a sense that Khalid Al-Falih fell out of favor with MBS. Despite being an excellent statesman who brought together the Russia-Saudi Arabia alliance it is felt that he was not strongly supportive of the Aramco IPO for which there is a growing urgency to execute,” Midgley said.

He said the appointment of Prince Abdulaziz puts in place someone closer to Crown Prince Mohammed bin Salman who is likely to execute his agenda.

“It is clear that the ministers’ focus will be on looking at a way to successfully IPO Aramco. This is part of MBS’ Vision 2030 to move Saudi Arabia away from oil dependence and diversify the economy,” Midgley added.
Source: Platts