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2016-04-19 18:05:00

THE UNPREDICTABLE SAUDI

THE UNPREDICTABLE SAUDI

As the fallout from collapsed oil talks in Doha reverberates, Saudi Arabia's Mohammed bin Salman has emerged as the unpredictable new voice of the kingdom's energy policy.

The 30-year-old deputy crown prince and favoured son of King Salman was not even in the Qatari capital, where many of the world's biggest oil producers had gathered in hopes of brokering the first global output deal in 15 years in an effort to arrest a prolonged price slide.

Still, his message echoed through the marble halls of the Sheraton: there would be no production freeze without Iran.

Around 3am on Sunday morning — just hours before the talks were due to begin — Prince Mohammed called the Saudi delegation, according to people briefed on the matter, and ordered them to come home. The Saudis ultimately remained, but the talks were effectively dead.

The episode has left Ali al Naimi, the kingdom's technocratic oil minister for the past 21 years, looking increasingly sidelined. While the Saudi royal family has always had the final say on oil policy, rarely has a member spoken so publicly — or freely — on its direction. Delegates from other countries had been assured Mr Naimi was there to deliver a deal.

"Saudi Arabia's oil policy is now firmly in the hands of Deputy Crown Prince Mohammed bin Salman," said Sean Evers, managing partner of Gulf Intelligence in Doha.

On Monday, Venezuela's oil minister Eulogio del Pino said the Saudi delegation gave the impression of having "no authority to decide on anything."

Prince Mohammed, 30, suddenly gained enormous clout after his father's accession to the throne last year, and has moved quickly to consolidate his power. He heads the defence ministry and economic council, from which he has commanded both the war in neighbouring Yemen and drawn up plans for Saudi Arabia's transition to a post-oil economy.

Under his guidance, Saudi Arabia's oil policy appears to be less driven by the price of crude than global politics, particularly Riyadh's bitter rivalry with post-sanctions Tehran. Oil, analysts say, has become a weapon for Saudi Arabia to wield in its proxy war with Iran.

As late as Sunday morning, delegates from 18 countries, representing around half of all global crude oil production, said they thought the Saudis were ready to make a deal.

Saudi technocrats were said to have been involved in the first draft of the agreement that was circulating among attendees at the meeting.

Senior Opec delegates had briefed journalists that Riyadh's participation did not hinge on decisions made in Tehran. Iran has consistently refused to cap output as it rebuilds its oil industry following years of western sanctions.

"Almost everyone was under the impression that within an hour a deal would be signed," said one delegate.

Even close Saudi allies like Kuwait had said on Sunday morning that they were "optimistic" a deal would be done.

But word soon spread that all was not well. The Russian camp was locked in negotiations with the Saudis, Qataris and Venezuelans — a core group that had first backed the freeze in February. The Saudi delegation was pushing for additions to the draft.

By that afternoon, the meeting risked descending into farce, as delegates struggled to find language that could still secure a deal. Without any Iranian representatives at the meeting it was a futile task.

"Some members even left before the end of the meeting," one delegate said. "They saw the discussion was going round in circles."

When the meeting finally broke up after 8pm on Sunday, the deal lay in tatters.

Even Saudi Arabia's Gulf Arab allies were annoyed. Some questioned why they had allowed Opec and non-Opec countries to convene if their position was so concrete and Iran's stance was so well-known.

"My understanding is that this was purely political," one non-Gulf delegate said. "How can they go from agreeing to everything on Saturday and turning everything upside down on Sunday?"

In the lead up to the meeting, Mr Naimi gave little indication he faced opposition in Riyadh to a deal that might allow concessions to Iran.

At a public appearance in February, Mr Naimi said that while an output cut was not on the table, a deal to freeze production could be the "beginning of a process".

His words were taken by many as a sign that Saudi Arabia was preparing to retake control of the oil market for the first time since late 2014. Back then, Mr Naimi warned Saudi Arabia did not care if oil fell to $20 a barrel after Russia declined to join a production cut.

Many believed Saudi Arabia's stance had softened after almost two years of falling prices that have burnt through more than $100bn of Riyadh's cash reserves. Further concerning the Saudis, the industry has embraced "lower for longer" prices, slashing investments at a rate that some fear could eventually create supply shortages for which Riyadh might be blamed.

Others faulted Venezuela and Russia for failing to use their ties to Iran to bring it to the negotiating table with a softer proposal that would require Tehran to cap output only after it had reached a certain level.

Alexander Novak, Russia's oil minister, described Saudi Arabia's stance as "unreasonable" given Iran did not have a representative in Doha. The talks, he said, were to clinch a deal that had already been agreed — not to negotiate.

"The worst thing is that now non-Opec players have been brought into the Opec situation, they will never want to come back again," one delegate remarked.

There were other signs that Saudi Arabia's oil ministry was preparing for a deal. Between January and March the country held its oil output at around 10.2m barrels per day — a level consistent with the proposed freeze.

This was after the country raised output to a record 10.6m b/d between November 2014 and June 2015. Then Mr Naimi made no threats about where the country's output could go, increasing production quietly in an attempt to secure market share.

Prince Mohammed last week said the country's production could immediately rise to 11.5m b/d — if there was demand.

At the time, this was seen as a thinly-veiled threat to extract concessions from Iran. Now many in the oil industry fear Prince Mohammed could try to take Saudi Arabia's market share policy to the next level, just as supply and demand finally seemed at last to be heading towards balance.

As Petromatrix analyst Olivier Jakob says: "One of the main conclusion of the Doha meeting is that the Saudi regime has become very unpredictable."

ft.com

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More: 

OIL FREEZING 

SAUDI FUND $2 TRILLION 

SAUDI LOSES MARKET 

SAUDI EXPANSION 

SAUDI PRICE WAR 

SAUDI NEED MONEY

 

 

 

 

Tags: SAUDI, IRAN, OIL, PRODUCTION, PRICES,

Chronicle:

THE UNPREDICTABLE SAUDI
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OIL PRICE: ABOVE $61 AGAIN

REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.

THE UNPREDICTABLE SAUDI
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IEA COOLS THE MARKET

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THE UNPREDICTABLE SAUDI
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IEA: GLOBAL ENERGY DEMAND UP BY 30%

Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.

THE UNPREDICTABLE SAUDI
November, 15, 15:10:00

RUSSIA'S OIL EXPORTS UP

Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.

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