Saudi Arabia signals oil production cuts will stay

Saudi Arabia’s new energy minister has moved to reassure oil markets that production cuts co-ordinated with Opec and Russia would remain in place, as the kingdom accelerates plans for a listing of its state-owned oil company.

In the first public comments by Prince Abdulaziz bin Salman since he replaced the respected Khalid al Falih as energy minister, he said his arrival would not derail the kingdom’s goals, with co-operation with Russia and other producers set to continue “for the long term”.

Speaking in Abu Dhabi, Prince Abdulaziz also stuck to the view that Saudi Arabia must be allowed to enrich uranium as part of its plans to build nuclear power stations, a possible stumbling block with its ally in Washington.

The unexpected appointment of Prince Abdulaziz, half-brother of the kingdom’s de facto ruler, Crown Prince Mohammed bin Salman, marks the first time a royal has held the kingdom’s energy portfolio. Riyadh has historically placed the management of its oil wealth outside the ruling family.

The minister, who is set to meet Russian officials and other Opec members this week, emphasised there would not be “radical” changes but did not rule out shifting policy in the future.

“We have always worked in a cohesive, coherent way within Opec to make sure that producers work and prosper together,” he said. “It would be wrong, from my end, to pre-empt the rest of the Opec members.”

Oil traders and analysts have speculated that Prince Abdulaziz could seek to boost the oil price, either through deeper production cuts or other strategies. Crude has for much of the year traded below the $70-$80 a barrel level needed for Saudi Arabia to balance its budget.

Speaking at the World Energy Congress, the energy minister played down suggestions of an overhaul of the policy put in place by Mr Falih, which since 2016 has seen the kingdom lead Opec in partnering Russia to cut output. Oil prices rose 1.5 per cent on Wednesday to more than $62 a barrel.

The prince, who despite his royal background has worked with the energy ministry for more than 30 years, indicated that he would bring his own style to the job, saying that future policy would need to be flexible to respond to a changing market. Asked whether he was concerned about forecasts that demand could slow, he responded that he “would be on Prozac permanently” if he spent too long worrying about predictions.

The removal of the oil veteran Mr Falih comes as Prince Mohammed seeks to fast-track a listing of state oil company Saudi Aramco. The float of the world’s most profitable company is seen as the cornerstone of an ambitious domestic economic transformation that seeks to ultimately reduce the kingdom’s reliance on oil revenues.

Prince Abdulaziz said plans for the listing would come “as soon as possible”, although many analysts believe the kingdom wants a higher oil price first to help reach the ambitious $2tn valuation placed on the company by the crown prince.

Bob Ryan, chief strategist at BCA Research, said he expected the kingdom wanted oil prices at least “in the high $70s”. Lenders are being appointed to oversee the initial public offering, which has an ambitious internal target date of this year, according to bankers who pitch for such mandates.

Part of the broader economic overhaul is cutting the kingdom’s own reliance on burning oil and gas for electricity, looking instead at nuclear and renewable energy.

Prince Abdulaziz said Saudi Arabia would move “cautiously” with its nuclear energy programme. It has previously sought to tender for the first two reactors in 2020, and remains committed to producing and enriching its own uranium.

But this has prompted concerns — including in Washington — that the material could also be used for military purposes, with experts questioning the financial rationale for Saudi Arabia to process its own fuel solely for power plants.

Source: Financial Times