The death of Saudi King Abdullah bin Abdulaziz al Saud comes
at a critical point for the kingdom’s oil policy. The WSJ's Andrew Peaple
examines what oil watchers are looking for. Saudi Arabia has charted a long-term
course to drive down oil prices and maintain its major share of the global
market—and a change of who is on the throne in Riyadh won’t likely alter this
course.
Even after the death of King Abdullah, announced early
Friday, the kingdom is likely to continue to pump crude in the face of a global
glut, which has helped push prices down by more than 55% since last June. Surrounded
by unrest and uncertainty in the Middle East, Saudi Arabia is protecting itself
by exploiting its big advantages—huge oil reserves and low-cost crude
production, said Sarah Emerson, principal of ESAI Energy LLC in Boston.
Investors who had bet on lower prices likely closed out
positions on the chance that the king’s death could lead to a change in Saudi
Arabia’s stance, said Nader Naeimi, a fund manager in Sydney, at AMP Capital,
which oversees more than $120 billion in assets. Some investors don’t think the
new Saudi king will affect the policy of the Organization of the Petroleum
Exporting Countries.
The country’s current strategy has the backing of its powerful
oil minister, Ali al-Naimi, so investors and traders will be watching for the
possibility that a change of oil ministers could be afoot. Some Saudi experts
say it is unclear if the behind-the-scenes power struggle over who has
influence over King Salman is finished and whether the kingdom’s princes have
coalesced around him.
Mr. al-Naimi, 79, has headed the oil ministry since 1995,
during which time he has become one of the most closely watched figures in
global oil markets. He has previously said he had hoped he could dedicate more
time to King Abdullah University of Science and Technology, where he serves as
chairman.
King Salman, in his previous capacity as crown prince, said
in a speech on behalf of the late monarch earlier this month that the kingdom
would continue to deal with the challenge posed by falling crude prices with a
“firm will”.
Saudi industry officials have said that King Salman is
likely to retain the long-standing oil minister at least in the short term.
Traditionally incoming kings have chosen to appoint new ministers to lead key
ministries like oil. If the king opts for finding a successor the best-suited
candidates to replace him are likely to be the chief executive of the state-owned
giant Saudi Aramco Khalid Al-Falih or Salam’s own son Prince Abdulaziz bin
Salman, the current deputy oil minister who attends most OPEC meetings.
In early October, the country’s representative to OPEC
surprised attendees at a New York seminar by revealing his government was
content to let global energy prices slide. But as the oil-price slide
accelerated, Prince Abdulaziz worried to colleagues that the kingdom’s budget
couldn’t bear lower prices long, people familiar with the matter said.
Saudi Arabia controls more than 15% of the world’s proven
oil reserves and vies with Russia and the U.S. for the title of biggest
petroleum producer in the world. As American companies have pumped soaring
amounts of oil from shale, Saudi Arabia’s exports to the U.S. have fallen,
dropping to 25.6 million barrels a month in October. But it remained the
third-largest supplier to the U.S. after Canada and Mexico, according to the
U.S. Energy Information Administration.
After oil prices began dropping from their triple-digit peak
in late June, traders looked to Saudi Arabia to cut production to prop up
prices, as it did in the 1980s. But in November, the Organization of the
Petroleum Exporting Countries voted to keep pumping the same amount of oil, and
that isn’t likely to change soon, said Amy Myers Jaffe, an energy observer at
the University of California Davis.
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