Oil hits six-week high on hopes of extended OPEC cuts

Andrew Cummings
September 12, 2019

Prince Abdulaziz bin Salman, Saudi Arabia's new energy minister and a long-time member of the Saudi delegation to the Organization of the Petroleum Exporting Countries (OPEC), said the kingdom's policy would not change and a global deal to cut oil production by 1.2 million barrels per day would be maintained.

"The new minister is highly experienced and knows his subject better than just about anyone in the country", said Joseph Kechichian, senior fellow at the King Faisal Center for Research and Islamic Studies in Riyadh.

Prince Abdulaziz also alluded to the sense that Saudi Arabia is shouldering the burden of production cuts, while other nations - notably Nigeria and Iraq - are flouting the limitations. They're projecting a recession subject to a possible trade war. As well as being responsible for oil production policy, Al-Falih was chairman of state oil company Aramco and led planning for its IPO.

The Buzzard oil field in the North Sea
The Buzzard oil field in the North Sea

The prince is King Salman's fourth son and an older half brother to the 34-year-old Crown Prince Mohammed bin Salman. The heir to the throne says he wants to diversify the economy and create jobs. Many have also shied away after the gruesome killing of Saudi critic and Washington Post columnist Jamal Khashoggi in the kingdom's consulate in Turkey a year ago by Saudi agents.

Aramco had made a decision to float around 5 per cent of the company in what could potentially have been the world's biggest stock sale that could have raised up to $100 billion based on the $2 trillion valuation of the company. Saudi Arabia has not said where an global listing would happen. Al-Rumayyan is a close adviser to the crown prince and heads the Public Investment Fund, the country's sovereign wealth fund.

But the IPO has failed to meet its 2018 deadline due to prevailing low oil prices that has also pushed investors to debate whether Aramco is really worth that much.

That's a sign of the uphill battle facing the group is engaged in, even as Iran's exports have been slashed by USA sanctions, Venezuela's output has slumped amid an economic crisis, and Saudi Arabia has had to cut three times deeper than initially planned just to keep prices supported at $60.

The major oil producers have agreed to curb production this year by 1.2 million barrels a day, with Saudi Arabia as the kingpin of OPEC shouldering the bulk of the cartel's cuts.

He helped to negotiate the current agreement between OPEC and non-OPEC countries including Russian Federation, a group known as OPEC+, to cut global crude supply to support prices and balance the market.

It is widely speculated that dissatisfaction with Khalid al-Falih grew over the continuing low oil prices despite the Kingdom agreeing to a continued oil output cut.

Prince Abdulaziz is a known figure among OPEC members and industry insiders. "I don't expect any big rupture in current Saudi oil policy".

Saudi energy ministers have all learned the limits to their power, usually the hard way, when they tried and failed to prop prices up.

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