The End Of An Era
Saudi Arabia’s oil minister Ali Al-Naimi was removed from his post over the weekend even as Brent crude closed at $45.30 a barrel on Friday. He was known as a soft spoken skilled negotiator among close circles whose stance was never questioned owing to his deep knowledge of the energy sector. A seasoned policy maker, Al-Naimi was OPEC’s Rock of Gibraltar and believed in crunching the demand supply numbers to perfection. The news spurred a speculative edge when trading opened at the Tadawul All Share exchange on Sunday as the Index made a high of 6734 before closing at its previous day high of 6672.
The World at His Feet
Al-Naimi featured on the Forbes list of most Powerful People between 2014 and 2015 even as Crude oil fell 69% from $115 to $35 a barrel in a span of 6 six months. Commodity Giant Glencore (LON:GLEN) continued bleeding in the aftermath and lost 80% of its stock price which fell from the highs of 378 to make a low of 78 within the same time frame. While global markets were staring at an imminent slowdown leading to a sharp fall in crude oil prices. Ali Al-Naimi remained the most daunting figure in the corridors of OPEC and beyond. The Octogenarian wielded insurmountable power as the Saudi Arabias oil minister and ensured that the biggest oil producer in the Middle East dominated the global oil markets by staying ahead of Shale oil drillers in the United States.
The Doha Fiasco
The Global Energy Industry was banking aggressively on the Doha meet where Al-Naimi was expected to use his global influence and steady the fall in energy prices. The world’s top oil producers however failed to reach an amicable deal in the absence of Iran even as Crude Oil prices survived the shock and traded above $35.50. Much was resting on the aged shoulders of Al-Naimi who was named one of the most influential people by the likes of Time Magazine , Bloomberg and the Forbes. The Doha failure exposed the chink in the Saudi Oil minister’s armour as speculations gripped the market with fear that Al-Naimi was fast losing his clout amongst oil producing nations. Crude oil prices in the United States plunged 6.5% on the 19th of April in the aftermath and were trading at $37.70 while Brent prices fell 6.8% and hovered around the $40 mark.
Is It The Beginning Of An End?
The appointment of Al-Falih as the Saudi Oil minister has not triggered fresh bouts of optimism even though crude prices opened marginally higher at $46.15 on Sunday after closing at $45.36 on Thursday. Although statistics prove that Al- Falih had played a pivotal role in establishing Aramco’s market share, the health mister has been quoted saying that “Aramco can sustain low prices for a long, long time”.
The Missing Link
The bone of contention remained the oversupply of the commodity against the slowdown of global consumption. It has been a multipronged predicament for oil producing countries like Venezuela, Nigeria, Russia and Ecuador who were pulling every possible string to avoid possibilities of sovereign default while crude oil plunged to $26. Be it the devaluation of currencies or capping the output of Crude, the world economy certainly needs fresh policy measures to tackle the rapid fall in global growth. With two decades of experience under his belt and a firm believer of pure economics Al-Naimi has been dealt a crude blow by the Saudi regime even as it prepared to introduce tax measures into its ailing economy.
Speculators betting On Iran
The Energy Industry remains an open playground for speculators while Oil minister Al-Falih braces for a challenge that can defy the natural laws of economics should Iran decide to close the strait of Hormuz located between Oman and Iran in the wake of the US Military drill conducted in the area. The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea and is a significant oil transport point with 20% of the world’s oil flowing through the strait. Crude oil prices need more than a shift in power to get the demand supply equation back in order. At $46 a barrel one can only hope that Oil companies would rebuild its growth story while the Fed keeps a close vigil on its economic outlook and refrains from hiking the rates till 2017.