Baku, Azerbaijan, Sept.9
By Leman Zeynalova – Trend:
The change at the helm of the Saudi energy ministry raises the chances that the current OPEC+ output deal is extended beyond its current expiry date of March next year, which would probably require the Kingdom to keep its oil output below its quota, Trend reports citing the UK-based Capital Economics research and consulting company.
“We doubt that the change in energy minister will result in a U-turn in oil policy such as that which followed Mr. al-Falih’s appointment in 2016. That time around, Mr. al-Falih abandoned his predecessor Ali al-Naimi’s strategy in 2014-16 of keeping oil output high and oil prices low in a bid to restrain growth of unconventional sources of oil, such as US shale. Crucially, though, this shift in policy was orchestrated by Crown Prince Mohammed bin Salman (MbS) and, even after the Aramco IPO, the crown prince will still hold significant sway over oil policy. While we doubt that MbS has decided to revert to Mr. al-Naimi’s approach, there does seem to be a stronger desire to push up oil prices. This increases the chances of a further extension to the current OPEC+ output deal (which is due to end in March 2020), which would probably require the Kingdom to keep its oil output below its quota,” said the company in its analysis.
This poses a downside risk to the company’s already-below consensus GDP growth forecasts.
“At this stage, we suspect that it would take a rapid deterioration in oil demand fundamentals rather than market sentiment for Saudi Arabia to push for deeper cuts to OPEC+ oil output. Oil policy aside, the further concentration of power around MbS adds to signs of renewed efforts to push key elements of Vision 2030. Preparations for the Aramco IPO are being stepped up, with several banks set to be granted roles in the coming days. And construction of Neom, a new economic city on the Red Sea coast, is gathering pace – yesterday, two firms were awarded contracts to build an accommodation village for construction workers at the site,” reads the analysis.
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