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Saturday, December 10, 2016

Saudi personnel changes excite the oil market


The largest player in the oil market Saudi Arabia for the first time in 20 years, changed the oil Minister. It happened in a very turbulent time: after the failure of the Doha negotiations and on the eve of the June OPEC meeting. Now the main question, which excites the global market – will the approach of Saudi Arabia to the question of the limitation of oil production.

Saudi Arabia’s king Salman al-Saud, has sent in the resignation of the country’s oil Minister Ali al-Nuaimi, who had held this position for over 20 years (since 1995). The issues of oil policy will now be managed by the Chairman of the Board of Directors of the world’s largest mining company and the size of the oil reserves of Saudi Aramco Khalid al-falih.

“Hardly the king of Saudi Arabia may allow any Minister to conduct an independent policy”

This decision cannot be called a big surprise. Possible change of the oil Minister spoke a year ago, after Saudi Arabia changed the power. In January 2015 crown Prince Salman came to power after the death of his brother king Abdullah al-Saud, on 91-m to year of life.

The new king has started a major political reshuffle. Almost a year ago he appointed Khalid al-falih head of the national oil company Saudi Aramco and the Minister of health. Now the king dismissed him from the post of health Minister, making the Minister of oil. While al-falih remained at the head of main oil company in the country.

On the one hand, the king is thus not departed from longstanding practice, according to which the oil industry is run by people who are not related by family ties with the Royal family. On the other, plans for separation from Saudi Aramco, Ministry of oil fell. The company received had last year the opportunity to more freely make decisions again in the hands of oil Minister, which controls the Saudi king.

This year the resignation of the oil Minister of the Kingdom spoke with the new force immediately after the failure of the Doha negotiations by freezing the level of oil production. “The debacle in Doha showed the impotence of the current Minister and chosen wrong policy,” said Alena Afanasyeva, a senior analyst at GK Forex Club.

What to expect

Now the main question that dominates the world market for oil – will the oil policy of Saudi Arabia and what the outcome of the next OPEC negotiations in June when the newly-minted Minister.

80-year-old al-Nuaimi, who left the Ministry of oil, was called one of the initiators of the policy that OPEC holds 2014. He insisted on maintaining production volumes at maximum levels even in the biennial of the fall in oil prices. Mainly it was to keep Saudi Arabia on the world oil market.

At the moment it is not clear, has anything changed with the arrival of a new protege of the king. The market is waiting for the first official speeches of the newly-minted Minister on this subject. While Khalid al-falih said only that he intends to continue his predecessor’s policies for the protection of market share. But a clear answer that does not: he might have had in mind the preservation of the volume of production at current levels, and could speak and about increase in volumes.

There is also the statement of the head of the oil company Saudi Arabian Oil Amin Nasser that Riyadh plans to increase production in 2016 and to strengthen its presence in the global market. In this context, the market there have been panicky statements that the new oil Minister could again derail oil prices. The failure of the negotiations in Doha accused, including Khalid al-Balihai. Previously, he spoke of plans by Saudi Arabia to increase oil production from 10.5 to 12.5 million barrels per day. This is a record levels.

“The reason for the change of the Minister is not in politics, which was held by Ali al-Nuaimi. His replacement Khalid al-falih adheres to the same course, and it is unlikely the king of Saudi Arabia may allow any Minister to conduct an independent policy. Accordingly, if the course of the Ministry will not change, at the June OPEC meeting is unlikely to happen something extraordinary,” – said the Deputy Director of analytical Department of “Alpari” Anna Kokoreva.

However, there are more optimistic opinions. “On the one hand, Khalid al-falih, a protege of the Royal family, which insisted on the failure of the negotiations in Doha. On the other hand, the probability of a change of policy was still higher than in Ali al-Nuaimi,” – says Alyona Afanasyeva from Forex Club. It does not exclude that the new Minister may be still more accommodating at the June OPEC meeting.

In addition, an even greater increase in oil production in the country is not correlated with the ongoing Saudi Arabia policy to reduce dependence on oil exports. A strategy called Vision 2030 oversees Saudi Prince Mohammed bin Salman.

At least, not increase the oil production by OPEC may become a strong support for the black gold. “It is likely that the market will gradually begin to price the more radical measures at the traditional June meeting of OPEC. It is able to support the growth of Brent crude to around $ 48 per barrel in the next week and give impetus to break the 50-dollar mark in the medium term” – does not preclude Afanasyeva.

Large-scale production cuts out of OPEC, coupled with the stabilization of OPEC production and continuing demand growth is likely to lead to the balancing market in the third and fourth quarter of this year and will contribute to further recovery in prices up to 55-60 dollars for barrel of mark Brent by the end of this year, making a forecast analysts “Veles the Capital”.

Trading in the oil market this week reflect raznovrsnost understanding of how it will continue to behave in Saudi Arabia. The first day of trading this week (the day before) the interesting market reacted to the same news.

“It is curious that, in fact, the morning driver of growth Brent back above $ 46 and subsequent collapse to the level of 43.50 dollar was one factor,” says Paul Salas, CEO of eToro in Russia and the CIS. Initially, the market was encouraged by news of the resignation of the oil Minister of Saudi Arabia, fueling hopes for a change the Kingdom’s policies and rising oil prices. However, by evening, their opinion changed. Today, Tuesday, Brent first fell, and it again strengthened to 15.30 44.42 USD per barrel. At the very least, a strong decline can be avoided.

“Perhaps investors assume that the policy of Riyadh will become even more conservative, because the interests of the industry is directly the employee of oil companies, there is concern in the interest of al-falih in those or other decisions” – hopes Kokoreva.

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