Oil climbs after Saudi Arabia detains princes and dozens of former officials

Oil climbs after Saudi Arabia detains princes and dozens of former officials

FILE PHOTO: Mohammed bin Salman attends a graduation ceremony and air show marking the 50th anniversary of the founding of King Faisal Air College in Riyadh, Saudi Arabia, January 25, 2017. REUTERS/Faisal Al Nasser/File Photo

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  • Oil prices are higher on Monday after Saudi Arabia detained dozens of high profile figures over the weekend.
  • Analysts don't expect major short-term changes to oil following the recent developments, given that Crown Prince Mohammed bin Salman, who was behind the purge, has backed the kingdom's oil policy.

Oil prices are higher on Monday after Saudi Arabia detained dozens of high-profile figures, including 11 princes, former ministers, and billionaire Prince al-Waleed bin Talal, in a new anti-corruption probe headed by the kingdom's powerful Crown Prince Mohammed bin Salman (MBS).

Brent crude oil, the international benchmark, was up by 0.7% at $62.50 per barrel at 8:28 a.m. ET.

Given that the kingdom is one of the key players in the global energy market, some have probably wondered if the shake-up has any implications for Saudi oil. Most analysts, however, aren't expecting any major shifts in the near future given that Mohammed bin Salman has been behind the kingdom's oil policy.


"Crown Prince Mohammed bin Salman's Saturday night purge represents a stunning political development in Saudi Arabia and a shot across the bow at the old establishment," Helima Croft, global head of commodity strategy at RBC Capital Markets, said in a note to clients.

"MBS' supporters maintain that the arrest of princes was entirely about eradicating corruption, but it seemingly serves a broader consolidation plan," she continued. "We expect no immediate changes in oil policy. MBS seems strongly committed to anchoring the OPEC agreement deep into 2018 and moving ahead with the Aramco sale."

Analysts at BMI Research also said in a note to clients that the detainments over the weekend likely won't lead to major immediate changes: "Given that MBS has been the architect of the kingdom's current oil policy, we believe that this latest development does little to alter the status quo domestically."

As for what this might mean for OPEC policy, they continued:

"Internationally, MBS's tightening grip on power also signals a continuation of the current OPEC policy. The Crown Prince has pressed for the kingdom to adopt a more interventionist stance in the oil market and has been central to the OPEC, non-OPEC production cut deal. This represents a stark contrast to policy adopted under the former oil minister Ali Al-Naimi, who chose to step back from the market and allow the price to clear the global supply glut. MBS's concern has been to support a higher and more stable oil price, which may reflect the need for higher revenues to fund the Saudi Vision 2030 diversification drive (the IMF estimates an oil price of above $70 per barrel in 2018 to achieve a fiscal surplus) or concerns over the valuation of Aramco ahead of its planned IPO."


OPEC and several other major producers including Russia (but not the US) first agreed to cut production back in November 2016, with the Saudis agreeing to bear the brunt of the cut. In May, they extended production cuts into 2018. The decision to reduce production reflected producers' desires to end the global supply glut, which kept oil prices depressed for over two years and increased domestic financial stresses.

Against this backdrop, Mohammed bin Salman has been pushing forward with his Vision 2030 plan, which aims to curtail the kingdom's "addiction" to oil via various measures including the public listing of a part of the kingdom's crown jewel, Saudi Aramco. He recently told Bloomberg that he supports extending the cuts past March 2018.

Looking forward, Croft argued that the bigger question about the crown prince's oil policy is the medium-term agenda, arguing that "there were some signs last week that the young leadership is hedging its bets on oil's actuarial table."

Specifically, she noted that the kingdom's new NEOM megacity project is expected to be powered by solar and clean energy, and pointed out that last week the Saudi Finance Minister said Vision 2030 was a response to the recent volatile oil price environment.

"Thus, there may be a question mark over the role that conventional fossil fuels will play in the MBS modernization plan as he is clearly focused on all things disruptive," she said.


OPEC will be meeting again on November 30. Most analysts expect the cartel and other non-OPEC producers to roll over the production cuts.

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