Saudi Arabia will probably keep producing crude at near-record levels under its newly appointed oil minister, Khalid Al-Falih, as the world’s largest exporter sticks with his predecessor’s policy of defending market share against higher-cost shale.
Al-Falih, also chairman of the state producer Saudi Arabian Oil Co., said on his first day in office on Sunday that he will maintain the kingdom’s oil policy. His predecessor, Ali al-Naimi, had been leading a policy prioritising sales over prices since 2014, driving some higher-cost producers, including US shale drillers, off the market.
In so doing, Saudi Arabia boosted output, adding to a supply glut. The strategy is showing signs of succeeding this year, with prices gaining more than 60 per cent since tumbling to a 12-year low in January. Saudi Arabia could exceed its record output of more than 10.5 million daily barrels if it pumps more to meet a seasonal surge in domestic demand during the summer months, analysts from Emirates NBD PJSC and Qamar Energy said. The country, with the world’s second-largest oil reserves, pumped 10.27 million barrels a day in April.
“If the market considers the appointment as signaling more of the same for Saudi policy, that could allow prices to continue following their gradual trend upward,” Edward Bell, commodities analyst at Emirates NBD, said Sunday by phone from the Dubai-based bank.
Continuity in Saudi policy may be offset by the immediate impact of Canadian forest fires forcing about 1 million barrels of daily crude production offline, he said.
Saudi Arabia appointed Al-Falih on Saturday to head the newly expanded Ministry of Energy, Industry and Mineral Resources. He replaces al-Naimi, a 20-year veteran in the post. Al-Falih takes over the ministry responsible for most of the nation’s income as the biggest producer and de facto leader of OPEC embarks on an economic overhaul designed to make it less reliant on petroleum.”
Saudi Arabia will maintain its stable petroleum policies. We remain committed to maintaining our role in international energy markets and strengthening our position as the world’s most reliable supplier of energy,” Al-Falih said in a statement on Sunday.
Brent crude plunged to less than half of its annual average of more than $100 a barrel from 2011 through 2014, adding urgency to the push for changes in Saudi Arabia and other energy exporters in the region. Brent crude in London added 1.4 percent to $46.02 a barrel by 1:02 p.m. Singapore time, a partial recovery from its intraday low of $27.10 a barrel on Jan. 20.
“They’ll continue the policy of relatively high oil production with no freeze and no deals,” Robin Mills, chief executive officer at consultant Qamar Energy in Dubai, said Sunday by phone. “It depends how aggressive the Saudis are in pursuing high production for extended periods and how willing they are to accept lower prices for longer.”
Bloomberg
