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What the Saudi royal reshuffle means for oil

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Uncertainty hit oil markets on Wednesday, with analysts contemplating what a major reshuffle of Saudi Arabia’s ruling elite might meant for the commodity.

On Wednesday, it was announced that Saudi Arabia’s King Salman bin Abdulaziz had appointed a new heir and rotated some of the top ministerial jobs, accelerating the personnel changes set in motion when he took the throne in January.

As Saudi Arabia is the world’s top oil exporter and the dominant force in OPEC (the Organization of the Petroleum Exporting Countries), any change to its power structure is of major interest to energy markets. This is particularly the case given OPEC’s maintenance of oil production at high levels—in order to retain market share—which is viewed as exacerbating the 40 percent price decline seen since last June.

However, analysts said that Wednesday’s personnel changes, which include the promotion of the Deputy Crown Prince to Crown Prince and a new Foreign Minister and Economy Minister, were unlikely to affect Saudi oil production policy.

Eugen Weinberg, head of commodity research at Commerzbank, said that although it was too early to tell, production cuts were unlikely given hints about supplying extra oil to Asia.

“The focus should remain on its (Saudi Arabia’s) market share and the latest talk by (Oil Minister Ali al-Naimi) seems to support this view along ‘we stay ready to supply more to Asian clients thanks to their stronger demand’,” he told CNBC via email.

“I think the market is way too optimistic now and the big price correction might be around the corner.”

In a move that could directly affect oil, well-known Saudi businessman Khalid Al-Falih has replaced Oil Minister Ali al-Naimi as chairman of the Saudi Arabian Oil Company (Saudi Aramco) and has also been appointed health minister. Saudi Aramco is the state-owned petroleum and natural gas company.

“I don’t think it (the management change) will have much impact,” Thomas Pugh, commodities economist at Capital Economics, told CNBC via email.

“The country is unlikely to change its policy of maintaining production as long as Al-Naimi is still oil minister and OPEC delegate. To be fair, even if he were to be changed, it would have to be for someone with a radically different point of view to instigate a change in policy and I’m not sure anyone in Saudi Arabia wants that.”

Richard Mallinson, a geopolitical analyst at Energy Aspects, told CNBC that Al-Falih was seen as a natural successor to al-Naimi as the next oil minister.

“He has been the most commonly associated with the role…but it’s by no means certain,” Mallinson said via telephone.

The eventual appointment of Al-Falih as Oil Minister would fit with previous practice, according to Mallinson, as both Al-Falih and Al-Naimi were appointed Chairman of Saudi Aramco after previously being CEO. Al-Falih would have a similar strategy to al-Naimi and would likely allow market forces to rebalance the oil price, he added.

Other appointments announced on Wednesday included the appointment of Interior Minister Mohammed bin Nayef as heir to the throne, according to Reuters, and his son, Defense Minister Mohammed bin Salman, is now second in line to succeed.

Saudi Arabia is not only the world’s biggest exporter of oil but also one of its largest producers. It is the main “swing producer” within OPEC, meaning it is viewed as the most likely member to be able to respond to global oil prices by curbing or increasing production.

OPEC decided to keep oil production steady at the end of the last year despite a dramatic drop in global oil prices. The next meeting is due in June and some OPEC nations—other than Saudi Arabia—have been publicly calling for a cut in production to help boost the commodity’s price and restore government revenues that have been hit.

Saudi Arabia, therefore, is watched-closely by oil analysts and market participants. However, oil prices were relatively unchanged on Wednesday, despite the reshuffle. Brent crude futures dropped around 30 percent to $64.64 a barrel and U.S. WTI crude was down 0.7 percent at $56.65


10 Comments on "What the Saudi royal reshuffle means for oil"

  1. BobInget on Wed, 29th Apr 2015 9:55 am 

    I can’t think of a better comment then the old saw: “Rearranging deckchairs on the Titanic”

    We can be sure a minority on Royals have begun to realize they stepped in dog shit but believe they can unring Yemen’s bell if you will excuse mixing metaphors.

    In North Korea, the other nuclear tipped* dictatorship ‘The Dear Leader’ simply
    has any pretenders to the throne executed**.

    *–But-Beware-Israeli-Saudi-Sabotage-20150406-0022.html *

    **”North Korea’s Kim Jong-un ordered the execution of 15 senior officials this year, including several who complained about the young leader’s policies, South Korea’s intelligence agency said on Wednesday.
    Those executed included two vice minister-level officials, the Yonhap news agency reported, citing legislators who attended a briefing by the National Intelligence Service (NIS).
    Both were punished for opposing or complaining about Mr Kim’s directives, the legislators said, adding a vice forestry minister was executed for complaining about Mr Kim’s forestation plan.
    As well as the 15 senior officials, the NIS said four members of North Korea’s Unhasu Orchestra, with which Mr Kim’s wife, Ri Sol-Ju, had once been a singer, were executed in March.”

    See the difference between a ‘Palace Coup’
    and a stupid young lunatic dictator ?

  2. Plantagenet on Wed, 29th Apr 2015 10:32 am 

    The Saudis created the oil glut by boosting KSA oil production to record levels. They can end the oil glut by choking KSA oil production back down to its usual levels.

  3. BobInget on Wed, 29th Apr 2015 10:56 am 

    HRH: Because a shipping lag time, it appears
    Saudi Larding On Period, has ended.

    The five or six weeks it takes to deliver crude from KSA cut off when the Kingdom took on
    bombing its neighbor without consulting efficacies of unsupported air-wars.

    All that oil, once destined for the US is now going to Jet-fuel and power generation for air conditioned fifty story palaces.

    below I’ll paste in today’s EIA inventory report. Note how the release time matched
    oil’s price rise.

    Summary of Weekly Petroleum Data for the Week Ending April 24, 2015
    U.S. crude oil refinery inputs averaged 16.1 million barrels per day during the week
    ending April 24, 2015, 118,000 barrels per day more than the previous week’s average.
    Refineries operated at 91.3% of their operable capacity last week. Gasoline production
    decreased last week, averaging about 9.4 million barrels per day. Distillate fuel
    production increased last week, averaging over 4.8 million barrels per day.

    U.S. crude oil imports averaged over 7.4 million barrels per day last week, down by
    319,000 barrels per day from the previous week. Over the last four weeks, crude oil
    imports averaged over 7.6 million barrels per day, 0.9% below the same four-week period
    last year. Total motor gasoline imports (including both finished gasoline and gasoline
    blending components) last week averaged 763,000 barrels per day. Distillate fuel imports
    averaged 135,000 barrels per day last week.
    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
    Reserve) increased by 1.9 million barrels from the previous week. At 490.9 million
    barrels, U.S. crude oil inventories are at the highest level for this time of year in at least
    the last 80 years.

    Total motor gasoline inventories increased by 1.7 million barrels last
    week, and are above the upper limit of the average range. Both finished gasoline
    inventories and blending components inventories increased last week. Distillate fuel
    inventories decreased by 0.1 million barrels last week and are in the middle of the
    average range for this time of year. Propane/propylene inventories rose 2.6 million
    barrels last week and are well above the upper limit of the average range. Total
    commercial petroleum inventories increased by 7.7 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.2 million barrels
    per day, up by 4.4% from the same period last year. Over the last four weeks, motor
    gasoline product supplied averaged over 8.9 million barrels per day, up by 2.6% from the
    same period last year. Distillate fuel product supplied averaged about 4.0 million barrels
    per day over the last four weeks, up by 0.2% from the same period last year. Jet fuel
    product supplied is up 11.9% compared to the same four-week period last year

    Posted note:
    Of great interest is our last paragraph.
    In particular, almost 12% increase in Jet fuel
    consumption. Jet fuel is a single use distillate
    and a great economic indicator.

  4. antaris on Wed, 29th Apr 2015 11:34 am 

    Bob, Jet fuel was at $2.72 / gal last September and $1.72 / gal today. So is 12% more being used or is it being bought up because it is on sale compared to the last few years. What is the shelf life of jet fuel?

  5. BobInget on Wed, 29th Apr 2015 12:01 pm 

    That signal, the obvious slowing of imports and domestic production should revive
    oil prices past $61 in coming weeks.

    Everything is in place for a huge price spike
    over summer. As storage is sold off and
    news of Saudi Family Matters, Yemeni, Syrian slaughter is quieted for ‘National Security’
    considerations, every effort will be made to
    effect a sense of normality, keeping gasoline prices in check.

    By fall oil ‘experts’ will begin to notice. Imports are lagging behind expectations.

    ‘Suddenly’ that 80 year high surplus evaporates.
    (expect 20 Million Barrels per day consumed in July, August and September.

    WHEN Venezuela sells off Citgo KNOW that as the last month of Venezuelan (to US) exports.
    (Canadian financed Costa Rican Atlantic to Pacific pipeline should complete in 2016.
    another Nicaraguan, Chinese financed pipeline won’t be complete before 2019).

    When Canada’s Eastern Provence bound pipeline connections complete , expect one million fewer barrels p/d, once destined to the US to stop.

    By mid 2016 (or before) Russian and American relations will have reached new lows. Japan, along with S.Korea, Philippines, Vietnam and the US will be facing off China
    over oil resources, now more important then ever as all nations begin to incur oil intensive climate mitigation activities.

    By 2016

    The overriding question of the day still won’t be Peak Oil or Climate Changes but what to do with millions of starving war, climate and economic refugees. With years of food storage a memory, developed countries will try to protect borders from the desperate. .
    We see early symptoms From the UK, Europe to South Africa today.
    Next week, watch British election returns for strong anti emigrant sentiment advantaged by UKIP. ( Kinda like English Tea Baggers)
    I have a hunch UKIP will then polls indicate.


    China takes every exportable barrel to be had.

  6. Dredd on Wed, 29th Apr 2015 12:39 pm 

    What the Saudi royal reshuffle means for oil

    Oil will always be a poison endangering species no matter what the king does.

  7. Davy on Wed, 29th Apr 2015 1:17 pm 

    Bobby, economics may trump your prediction. You are assuming a normal BAU environment. That may not happen

  8. BobInget on Thu, 30th Apr 2015 11:43 am

    The kingdom spent $36 billion of the central bank’s net foreign assets — about 5 percent of the total — in February and March, the biggest two-month drop on record, data released this week show. The fall was in part due to King Salman’s order to give government employees and pensioners a two-month bonus after he ascended to the throne of the world’s biggest oil exporter in January.

  9. BobInget on Thu, 30th Apr 2015 12:59 pm 

    Did you read all of my last link?

    What do you, or anyone else, think?

  10. Davy on Thu, 30th Apr 2015 1:18 pm 

    Bobby, anyone reported to have the begging of dementia onset will give away the bank. How many years does he have you think? He is going to live it up. He is kicking ass and taking names in his family and putting the lazy spoiled KSA boys on the front probably thinking they are invincible.

    Honestly, Bobby, I don’t know. The whole place is in disequilibrium, overshoot, and religious civil war. How could you top that cocktail for a general collapse. Oh, forgot add US, Russian, and European meddling to the mix. Hot damn

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