Death of Saudi Arabia’s king unlikely to change country’s oil policy, says report

geoThe price of oil has fallen to around US$47 bpd from highs of almost US$110 bpd in January 2014. (Image source: Saleh AlRashaid/Flickr)The appointment of Ali Ibrahim Al-Naimi as the minister of petroleum of Saudi Arabia following the death of King Abdullah bin Abdulaziz Al Saud suggests that there will be no change in the Kingdom’s oil policy, said market research provider Platts Analysis

“The big question for world oil markets following the death of Saudi Arabia’s King Abdullah bin Abdulaziz Al Saud and the ascent to the throne of his half-brother Salman bin Abdul-Aziz Al Saud is whether the Kingdom will make imminent changes to its oil policy, which is currently focused on defending its market share against a rising tide of non-OPEC output,” added the market research provider.

The price of oil jumped between two to three per cent on markets around the world in the wake of the monarch’s death, revealed Platts Analysis.

Analysts agree

According to FBR Capital Markets, there were compelling economic incentives for Riyadh to continue with its market share strategy.

“Most notably, production cuts would not necessarily increase Saudi Arabia’s net revenue — they have the added disincentive of effectively subsidising technological innovation in the US shale patch, as well as funding rivals in Iran and Russia,” the bank said.

However, some analysts had been questioning whether there may be policy changes when Naimi eventually leaves his post.

FBR Capital Markets added, "Medium-term, there are legitimate questions about Saudi Arabia’s policy direction if and when Naimi vacates the position of oil minister or if subsequent succession challenges arise.”

Fereidun Fesharaki, chairman of energy consultancy FGE, expects oil policy to remain unchanged under Naimi but suggests that a change at the helm of the Oil Ministry could come early as June 2015 with a cabinet reshuffle.

“Minister Naimi has expressed his wish several times to retire but was instructed by the King to continue,”  noted Fesharaki.

UK-based economic research consultancy Capital Economics said that it made little difference regarding who was nominally in charge of Saudi Arabia because oil policy was largely determined by technocrats.

“The earlier slump in prices is starting to constrain supply — the number of active rigs in the US has begun to dip and many new projects elsewhere have been abandoned or postponed. What’s more, the latest global business surveys suggest that economic activity is picking up again at the start of 2015. This should ease fears about demand,” added Capital Economics.

Challenges

According to Platts Analysis, the 79-year-old King Salman bin Abdulaziz Al Saud has come to power at a challenging time for the country, both economically and regionally.

The Kingdom is facing the threat of the Islamic State (IS) insurgency in Syria and Iraq spilling over its northern border, while to the south, Shia Houthi rebels have forced the Yemeni President to resign amid continued clashes, added the market research company.

The International Monetary Fund (IMF) said that Gulf Arab producers were set to lose a collective US$300bn in oil export revenues in 2015. “Most of these wealthy states had built up sizeable financial reserves during several years of high prices, they would be able to fund as many of five years of budget deficits with no big impact on government spending,” it added.

Abdelmalek Sellal, Prime Minister of Algeria, noted, “The country is in a state of economic crisis as a result of falling oil prices and will defer a number of key infrastructure projects while continuing to invest in social projects. Algeria, whose 2015 budget is based on US$60 bpd, has sufficient cash reserves to meet its development budgets for the next three or four years without any issues.”

The GCC said on its website that the member states should develop common oil policies and take common positions towards the other world countries.

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