The ‘Prickly Prince’ of Saudi Arabia’s oil as crude prices fall

Prince Abdulaziz bin Salman spent nearly two decades as a relatively low-profile member of Saudi Arabia’s OPEC delegation. But since becoming the first royal to serve as the kingdom’s oil minister in 2019, he has made a name for himself, though not one to his liking: traders recently started calling him the “prickly prince”. Is.

From starting an oil price war with Russia in 2020 to contributing to a strain in US-Saudi relations last year, Prince Abdulaziz has been an outspoken manager of the kingdom’s oil policy but has a thin skin to react to minor things. Obsessed with the trend.

To supporters, he is a symbol of a more confident Saudi Arabia under the de facto leadership of his half-brother, Crown Prince Mohammed bin Salman. They believe Prince Abdulaziz has made several big market calls to strengthen Saudi influence over the oil market and strengthen the OPEC+ alliance with Moscow, despite Russia’s full-scale invasion of Ukraine. is over.

For the prince’s critics, however, he has a tendency to play his hand and pick unnecessary fights that make his central role of managing the price of oil, on which the kingdom’s economic hopes rest, more challenging.

The latest forceful move this week came when a crew of journalists, including entire teams from Reuters and Bloomberg, were banned from a key meeting at OPEC’s Vienna headquarters on Sunday. It is the first time that OPEC has largely let out news organizations through decades of wars, price rises and crashes.

People close to the minister said Prince Abdulaziz’s decision stemmed from his perception that his market outlook was not being given a fair airing. He believed this was contributing to the price of benchmark Brent crude falling below $70 a barrel in recent weeks. But the decision also reflects, he said, a royal temperament impervious to criticism and not to have one’s own way.

Yet the turning on of the press has been seen by some as a sign of desperation. As Saudi Arabia struggles to bend the oil market to its will with prices plunging despite two production cuts in eight months, resorting to blaming the messenger doesn’t inspire confidence.

Ra’ad Alkadiri, a veteran OPEC-watcher at the Eurasia group, said part of Saudi Arabia’s annoyance came from what he saw as a mismatch between the market’s underlying fundamentals — which OPEC could influence — and trader sentiment, which coral is a difficult animal to tame. ,

“You could argue that OPEC+ has managed the market extremely well, but it is utterly frustrating that the success of managing fundamentals is being overshadowed by sentiment over and over again,” Alkadiri said. “This makes it difficult for OPEC to strengthen its credibility.”

There was a sense of despair for those close to the prince. Many had anticipated a strong oil market would provide the revenue boost Crown Prince Mohammed needed to implement his economic reforms. Saudi Arabia needs an oil price above $80 a barrel to balance its budget, according to the IMF, and fund some of the “giga-projects” that the prince hopes could transform his economy.

Prominent figures such as energy hedge fund manager Pierre Andurand predicted at the start of the year that prices would exceed $100 a barrel when China reopened its economy. The International Energy Agency and OPEC itself have forecast a significant market tightening in the second half of 2023, which should push prices higher.

But the traders are not ready to accept. Prices have risen only for brief periods, such as when OPEC and its allies announced a surprise voluntary production cut in April, only to slide down again.

The cut was straight from the playbook of Prince Abdulaziz, who likes to keep the market on its toes, an approach seen as at odds with OPEC’s desire to be a “central bank of oil”.

Traders will be watching closely this weekend to see whether Prince Abdulaziz insists on further production cuts or other measures to prop up prices, or if the group adopts a “wait and see” approach. The latter seemed likely only a week ago, according to analysts and OPEC representatives, but action has become more likely after prices have rebounded in recent days.

“Everything is under discussion,” said a senior OPEC representative from the Gulf. “Still nothing is clear.”

OPEC ministers met briefly on Saturday afternoon ahead of the OPEC+ meeting – which will include Russia and other allies – where production policy will be decided. OPEC representatives said a cut of up to one million barrels a day would be discussed on Sunday, but no agreement has been reached.

Prince Abdulaziz only commented on the good weather in Vienna to the press on Saturday. He left OPEC’s headquarters smiling and shaking hands with UAE minister Suhail Al Mazrouei.

While those close to Prince Abdulaziz say he remains generally in good spirits, with his display of dry humour, he has begun to lash out. He warned short sellers betting against the price of oil – who he once said were “coming in like hell” if they doubt him – to “watch” once again last month. .

He then put in the IEA, a group that OPEC has spent years promoting dialogue between oil producers and consumers to find common ground, describing it as having a “special talent” for making inaccurate forecasts.

Traders say the danger to Saudi Arabia is that Prince Abdulaziz has now effectively challenged oil speculators. If he does not insist on another production cut, prices may fall further.

If Saudi Arabia leads OPEC in cuts, there is no guarantee that Russia will follow, as Moscow continues to cut its exports despite Western measures designed to restrict energy revenue flowing into its war chest. tries to keep

“As the oil price for Brent falls to $70 a barrel, the possibility of additional cuts by some OPEC+ members could increase. , , Although Russia is unlikely to be one of them,” Citigroup analysts said.

For OPEC+ members, one option, according to two people familiar with the talks, is to change production baselines — the maximum level countries can produce, which yields the size of individual production cuts.

The UAE has in recent times adopted what is believed to be a production baseline that underestimates its true production potential. A higher baseline would strengthen OPEC’s position over the long term, even if it agrees to cut further now. However, some analysts believe that the issue is too controversial for Prince Abdulaziz, and that it will be pushed back.

“I don’t envy OPEC this weekend,” said Eurasia Group’s Alkadiri. “They are stuck between a rock and a hard place.”