Saudi power struggle means oil prices will hit ‘$70 before $50′

CNBC

  • Oil prices are more likely to rise toward $70 a barrel than fall back to $50 a barrel after a purge of Saudi princes and ministers, one energy analyst told clients Monday.
  • The crackdown is a sign that Crown Prince Mohammad bin Salman is consolidating power as he attempts to reshape the Saudi economy.
  • Others say little has changed in Saudi oil policy following the crackdown.

Saudi Arabia’s economic reform plans are behind anti-corruption crackdown: Gamble  

Oil prices are more likely to rise toward $70 a barrel than sink back to $50 in the wake of the biggest political shakeup in Saudi Arabia in decades, according Roberto Friedlander, head of energy trading at Seaport Global Securities.

Crude futures rose to highs going back to mid-2015 overnight after Saudi Crown Prince Mohammad bin Salman orchestrated the arrest of several princes and ministers over the weekend. The Saudis framed the purge as a crackdown on corruption, though some analysts said it was likely a move by bin Salman to consolidate power as he embarks on an ambitious effort to reshape Saudi Arabia’s economy.

Following three years of soft oil prices, the Saudis have drained budget surpluses and now need to return to economic growth in order for the crown prince to survive, Friedlander said in an email briefing on Monday. The purge of powerful figures like Prince Miteb bin Abdullah, the former head of the National Guard, appears calculated to remove opposition to bin Salman’s plans, he said.

“The Saudi Situation means $70 before $50,” Friedlander wrote.

Bin Salman, who is widely expected to soon become king, is trying to generate growth by transforming the Saudi economy. Selling off a stake in state oil giant Saudi Aramco next year is the cornerstone of the plan, called Vision 2030.

Saudi Arabia's Mohammed bin Salman (2nd L) on April 19, 2017 in Riyadh, Saudi Arabia.

Saudi Arabia arrests powerful royals and businessmen in corruption crackdown  

Steady oil prices are seen as critical to the share sale. Saudi Arabia is spearheading production cuts among OPEC and other oil exporters in order to shrink global crude stockpiles, which supports prices.

“The Saudis CAN’T afford a renewed decline in prices or a decline in oil revenues,” Friedlander said, adding “they would certainly prefer to risk tightening the oil market too much and see prices hit $70, rather than risk letting them slip back to $50,” Friedlander said.

International benchmark Brent crude recently topped $60 a barrel on signs the oil market is tightening. Brent rose as high as $62.90 on Monday, while U.S. West Texas Intermediate crude peaked at $56.28 — both highs going back to July 2015.

A Brent crude price of $60 a barrel provides the optimal conditions for many of bin Salman’s initiatives to overhaul the economy, according to Helima Croft, global head of commodity strategy at RBC. She expects little to change immediately in terms of Saudi oil policy following the weekend’s events.

“MBS seems strongly committed to anchoring the OPEC agreement deep into 2018 and moving ahead with the Aramco sale,” Croft said, using an acronym for Mohammad bin Salman.

This scholar says the Saudi corruption crackdown is about economic reforms  

Prior to the crackdown, Barclays said Brent crude appears to be consolidating around $60 a barrel and could make a move toward $70 a barrel. However, the bank said on Friday that the move would be unsustainable based on the fundamentals of the oil market and investor positioning.

Barclays raised its price target for Brent crude to $60 a barrel in the fourth quarter and $55 a barrel in 2018, based on improved economic growth and unexpected disruptions due to conflict in Iraq and powerful storms in the United States.

Michael Cohen, head of energy markets research at Barclays, believes the consensus that OPEC will agree this month to extend production cuts past the expiration of the deal in March is premature. While bin Salman says Saudi Arabia is ready to extend the agreement, Russian President Vladimir Putin has suggested Moscow could wait to assess the market in March, he notes.

“The decision to extend OPEC/Non-OPEC cuts is not a decision for OPEC or Saudi Arabia alone,” Cohen wrote. “Neither the OPEC Secretariat nor Riyadh will commit to an extension without Russia’s participation, in our view.”

Options open on OPEC oil pact

Nasdaq

Saudi energy minister says flexible

RIYADH, Oct 24 (Reuters) – Saudi Energy Minister Khaled al-Falih said on Tuesday that there was flexibility and options were open on an OPEC-led oil output reduction agreement.

Falih, who holds the rotating presidency of OPEC, said monitoring was under way on compliance with the deal but he was satisfied and focused on everyone working together.

“We are very flexible, we are keeping our options open. We are determined to do whatever it takes to bring global inventories down to the normal level which we say is the 5-year average,” Falih said, adding that work remains to be done.

Falih added that oil investment had returned after the OPEC-led pact to reduce supply began in January and the recovery of the global economy.

There was consensus, he said, to continue until targets were reached to balance the market but shocks to the market by reducing more than needed should be avoided.

Oil prices tick higher as talk of extended output cuts offsets booming US crude exports

CNBC

  • Saudi Arabia and Russia expect to agree to extend a production cut aimed at draining a globlal glut of crude oil.
  • Libya’s Sharara oilfield resumed production after a two-day break.
  • Record U.S. crude oil exports are weighing on the market.

58465797

Getty Images

Oil prices steadied on Thursday on expectations that Saudi Arabia and Russia would extend production cuts, although record U.S. exports and the return of supply from a Libyan oilfield dragged on the market.

“Oil news is contradictory,” said Carsten Fritsch, analyst at Commerzbank in Frankfurt. “OPEC and Russia are talking about extending production limits, but there’s still plenty of supply with U.S. crude exports up sharply.”

Brent crude was up 34 cents at $56.14 a barrel by 7:50 a.m. ET (1150 GMT). U.S. light crude was up 10 cents at $50.08.

Both crude benchmarks have fallen more than 5 percent over the last week as investors have booked profits after almost three months of gains.

OPEC compliance at 'almost 100 percent': Russia energy minister

OPEC compliance at ‘almost 100 percent’: Russia energy minister  

Russian President Vladimir Putin said on Wednesday that a pledge by the Organization of the Petroleum Exporting Countries and other producers, including Russia, to cut oil output to boost prices could be extended to the end of 2018, instead of expiring in March 2018.

The statement came ahead of a visit by Saudi Arabia’s King Salman to Moscow.

“Putin and Salman will most likely reach, but not announce, an agreement to extend the OPEC/non-OPEC production deal, though with a commitment to taper the cuts,” said consultancy Eurasia Group.

The pact on cutting output by about 1.8 million barrels per day (bpd) took effect in January this year.

Despite this, other factors weighed on oil prices, including the return to production of Libya’s Sharara oilfield after an armed brigade forced a two-day shutdown.

Higher U.S. oil exports also dampened market sentiment.

Crude oil inventories down 6.02 million barrels

Crude oil inventories down 6.02 million barrels  

U.S. crude oil exports jumped to 1.98 million bpd last week, surpassing the 1.5 million bpd record set the previous week, the Energy Information Administration said.

The increase has been triggered by the wide discount in U.S. crude prices against Brent, making U.S. oil attractive on world markets.

Beyond short-term market drivers, analysts at Barclays bank said future oil demand could be undermined by improving fuel-efficiency and the rise of electric vehicles (EV).

“EV uptake and increased fleet fuel-efficiency could cut oil demand by around 3.5 million bpd in 2025,” the bank said. That is almost as much as major OPEC member Iran produces.

If the uptake of EVs rose to one-third of new cars by 2040, as many industry analysts expect, up from just 1 percent now, that could “affect oil demand by around 9 million bpd”, Barclays said.

‘The new OPEC bromance’

How Saudi Arabia and Russia are bonding over oil

  • A $1 billion fund will see Russia and Saudi Arabia strengthen their cooperation in oil, gas, electricity and renewable energy
  • It signifies an increasingly close strategic partnership between the two oil-rich states
  • King Salman will make the first ever state visit to Russia by a Saudi monarch

Khalid Bin Abdulaziz Al-Falih, Saudi Arabia's energy minister and president of OPEC, speaks as Alexander Novak, Russia's energy minister, left, listens during a news conference following the 172nd Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, May 25, 2017.

Akos Stiller | Bloomberg | Getty Images
Khalid Bin Abdulaziz Al-Falih, Saudi Arabia’s energy minister and president of OPEC, speaks as Alexander Novak, Russia’s energy minister, left, listens during a news conference following the 172nd Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, May 25, 2017.

The world’s biggest oil producers, Russia and Saudi Arabia, have announced a $1 billion fund to invest in energy projects — marking another chapter in the blossoming economic and political partnership between the two countries.

The latest deal will see Russia and Saudi Arabia strengthen their cooperation in oil, gas, electricity and renewable energy, Russian Energy Minister Alexander Novak told Al Arabiya television Monday, Reuters reported.

It signifies an increasingly close strategic partnership between the two oil-rich states.

RBC Capital Markets’ Global Head of Commodity Strategy Helima Croft told CNBC on Tuesday that the $1 billion deal was “just the tip of the iceberg” and that she expected a lot more cooperation and joint ventures on oil, energy, infrastructure and public investment projects.

“It’s remarkable what’s going on with Russia and Saudi Arabia now. Back in 2015, Russia said it had no intention of cooperating with Saudi Arabia but look at it now… You just have to look at the last OPEC meeting in May and look at Saudi Arabia Energy Minister Khalid al-Falih and Russian Energy Minister Alexander Novak’s comments – it is like watching an OPEC ‘bromance,'” Croft told CNBC, refering to the increasingly close economic and political relationship between the two nations, particularly in terms of oil.

Leaders of the oil industry and energy ministers are heading to Russia this week for a meeting between OPEC and non-OPEC members, with all eyes on whether an extension to a deal restricting oil exports will be extended.

‘No courtesy call’

In a sign of the meeting’s significance, King Salman is also attending – marking the first ever state visit to Russia by a Saudi monarch.

Croft said that King Salman’s visit to Russia was “a total continuation of the trend that we discussed in this report. Russia has gone from saying in 2015 that it had absolutely no intention of cooperating with OPEC in 2015, to essentially playing the role of OPEC co-president.”

“For King Salman to make this visit to Russia now, with all the reports of his failing health and plans to hand over the reins to MBS (Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud), to me signifies how important this strategic partnership has become to both sides,” she said.

The meeting in Moscow comes hot on the heels of a plan by Russia and Saudi Arabia, the de facto leader of OPEC, to set up a $1 billion fund to invest in energy projects, announced by Novak on Monday. The fund is expected to be finalized this week in Moscow and is designed to “extend cooperation” between the world’s largest oil producers.

Chris Weafer, senior partner at Macro Advisory Partners, told CNBC on Tuesday that King Salman’s attendance at the meeting was “very significant.”

“King Salman doesn’t do courtesy calls. The fact that he’s visiting Moscow – marking the first ever visit of a ruling sovereign of Saudi Arabia to Russia – just underlines how much the relationship between Russia and Saudi Arabia has changed over the last few years and more so in the as 12 months,” he told CNBC.

Making waves

Saudi Arabia and Russia made waves last year when they agreed (along with the rest of OPEC, albeit with some members more reluctant than others) to cut oil output by 1.8 million barrels a day in a bid to support and stabilize oil prices, which have declined since mid-2014 on the back of a glut in supply. In June 2017, the oil producers agreed to extend those cuts until March 2018.

Oil prices have failed to see the gains hoped from those cuts, however, with U.S. shale oil producers coming back online and demand still failing to keep up with supply. As of Tuesday midday, benchmark Brent crude was trading at $56.04 a barrel and West Texas Intermediate (WTI) at $50.51 with concerns of an over-supply still at the forefront of investors’ minds.

Russia’s Novak said Tuesday that oil exports would also be the focus of the Russia Energy Week 2017, which begins in Moscow on Wednesday. It is expected to be attended by more than half of OPEC’s 15 members, Reuters reported, with ministers due to focus on recommendations for the next meeting between global oil producers, scheduled for November.

There are also expectations that producers could discuss an extension to the deal to cut output beyond March 2018. RBC Capital Market’s Helima Croft believed the deal could be extended to June; meanwhile, Macro-Advisory’s Chris Weafer said the deal could be extended to run until fall 2018, saying that oil markets were not yet stable.

“We are not at the point where the oil price is safe,” he warned. “The original optimism that the oil market might reach some kind of equilibrium in late 2017 has largely disappeared… so I expect we’ll see an extension to the deal to cut output, although I expect we’ll hear that at OPEC’s next meeting in November.”

Miswin Mahesh, oil analyst at Energy Aspects, agreed that the oil giants could be more cautious in terms of announcing a further extension to the reduction in oil output.

“(Saudi Arabia and Russia) were both instrumental in brokering the global oil output deal, and now it opens a new area of cooperation in the energy sector between the two countries, in the wider energy spectrum (oil field services, cooperation in gas production and renewable projects among others),” he told CNBC via email Tuesday.

“(But) they are likely to continue monitoring the state of market fundamentals before announcing further extensions” and were likely to “play their cards close this time round, and not signal their decision to the market too early, so as to avoid being held hostage to the market’s pricing it too early and demanding more (as what happened last time).”

Aramco says IPO on track after report it is preparing for possible delay

CNBC

  • Bloomberg previously reported Saudi Aramco was preparing contingency plans for a possible delay to its planned initial public offering
  • The oil company said Thursday that its planned IPO is still set to go ahead
  • New York and London are seen as leading contenders as venue for the listing

Marwan Naamani | AFP | Getty Images

Saudi Aramco’s planned initial public offering remains on track, the company said on Thursday, after Bloomberg reported that the oil company is preparing contingency plans for a possible delay by a few months into 2019.

Saudi authorities are aiming to list up to 5 percent of the world’s largest oil producer on both the Saudi stock exchange in Riyadh, the Tadawul, and one or more international markets in an IPO that could raise $100 billion.

“The initial public offering of a stake in Saudi Aramco remains on track,” said Aramco in an email.

“The IPO process is well under way and Saudi Aramco remains focused on ensuring that all International Public Offering related work is completed to the very highest standards on time.”

Bloomberg reported on Wednesday the Saudi government is still aiming for the IPO of the state-owned oil giant in the second half of 2018, but that the timetable is getting increasingly tight for what is likely to be the biggest share sale in history.

Aramco has still not chosen an international venue for the listing although New York and London are seen as leading contenders. It has hired advisers for the deal, but has not chosen global coordinators or book-runners, banking sources have said.

Reuters reported last month that Saudi Arabia favors New York for the main foreign listing of Aramco, even though some financial and legal advisers have recommended London, citing people familiar with the matter.

Optimism for 2018

Saudi Arabia, Venezuela, Kazakhstan optimistic on 2018 crude oil fundamentals

platts.com

Oil ministers from four major oil producing countries — Saudi Arabia, the UAE and Venezuela of OPEC, and Kazakhstan — said, after meetings in Astana, market fundamentals were pointing to a more bullish 2018 and agreed output cuts could be extended past their March expiry if conditions warrant.

Saudi energy minister Khalid al-Falih met with Venezuela’s new oil minister Eulogio Del Pino, and separately with Kazakhstan’s energy minister Kanat Bozumbayev, in the Kazakh capital Saturday, according to statements from the Saudi energy ministry.

Falih then met UAE counterpart Suhail al-Mazrouei, the Saudi ministry said in a statement Monday.

The officials “expressed satisfaction with improving market fundamentals, accelerated by the collective efforts of OPEC and non-OPEC producers under the Vienna Declaration of Cooperation [and] agreed that an extension of the declaration beyond March 31, 2018, may be considered in due course as fundamentals unfold,” the statement said, referring to the OPEC/non-OPEC production cut agreement.

All options were open in the voluntary rebalancing efforts, the producers were quoted as saying.

OPEC and 10 major non-OPEC producers led by Russia agreed last December to cut a combined 1.8 million b/d in output through June 2017 to rebalance the market and induce draws of oil in storage. This was subsequently extended to March 2018.

Saudi Arabia has led the way cutting production, with output in August at 10.01 million b/d, according to the latest S&P Global Platts OPEC survey released Thursday.

It averaged 9.971 million b/d over January to August, some 87,000 b/d under its allocation of 10.058 million b/d.

Venezuela produced 1.90 million b/d in August and averaged 1.947 million b/d over the same period, putting it 25,000 b/d under its allocation.

Kazakhstan’s crude and condensate output growth accelerated to 1.742 million b/d in July, 62,000 b/d above its commitment to bring output to 1.68 million b/d.

It has struggled to meet its obligations due mainly to increased production from Kashagan, which averaged 200,000 b/d in July, as well as the Karachaganak field. Output cuts at mature fields have been unable to help trim the country’s total production.

Despite the “gradual” ramp up of the giant Kashagan field this year, Bozumbayev was quoted as saying Kazakhstan was able to achieve more than its full commitment to its agreed production cuts in August by reducing output at other fields.

A similar production level is also anticipated for September, according to the statement.

As for the UAE, Mazrouei reiterated Abu Dhabi National Oil Co.’s commitment to cut crude allocations by 10% in September and October.

“The company will be notifying its customers and the market, on a monthly basis, of the actual changes to its lifting schedule in an effort to demonstrate transparency and enhance credibility around UAE’s conformity with its targeted production under the Declaration of Cooperation,” the statement said.