Naimi finally allowed to retire, Saudi oil policy stays the same

Naimi, Falih May16

80-year olds are allowed to retire, even if they have to wait a year for final permission to be given.  But it seems a simple headline saying “Saudi Oil Minister retires after 69 year career” is not “exciting” enough in today’s media world?  So perhaps we can’t be too surprised to find some of the world’s media using headlines such as:

  • “Saudi Arabia just fired its oil minister”
  • “Saudi Arabia Dismisses Its Powerful Oil Minister Ali al-Naimi”

But it is still disappointing that a desire for “clicks” should over-ride the facts, particularly on such a critical issue.

It has, after all, been common knowledge that the 80-year old Naimi wanted to retire a year ago, after the death of Saudi King Abdullah.  He was only persuaded to stay on to provide continuity.  Now, just before Ramadan begins on 7 June, is an ideal moment for the long-planned handover to Saudi Aramco chairman Khalid al-Falih to take place.

One benefit of his year-long lead-in to retirement was that Naimi was able to give a “retirement interview” to Daniel Yergin at the IHS/CERA conference in February.  This was a tour de force of everything that Naimi had seen and learnt during his 69-year career in the oil industry, which began when he joined Saudi Aramco as an office boy in 1947.

The question-and-answer session with Yergin was highly revealing of Naimi’s and Saudi thinking on the outlook for oil prices, particularly when he dismissed suggestions that OPEC production might be cut to rebalance the market.

Arguing that this decision was made in November 2014, he described the freeze concept as being modest in scope, even it it was possible to make it happen, due to the “lack of trust” between the major producers:

A freeze is the beginning of a process and that means if we can get all the biggest producers not to add additional barrels, then this high inventory we have now will probably decline in due time, its going to take time.  It is not like cutting production, that is not  going to happen, because not many countries are going to deliver even if they say they will cut production, they will not deliver.  So there is no sense in wasting our time seeking production cuts, they will not happen.”

Today it is clear that even the freeze concept has been abandoned.  So in terms of oil market developments,now is a sensible moment for Naimi to move into his well-deserved retirement.  But lets be clear. He wasn’t fired or dismissed.

Equally important is that the change of personnel doesn’t mean any change is likely in Saudi oil policy.  This has always been a slow-moving process, controlled at the highest level of the government.  And as Naimi explained to Yergin, the key decisions were made as long ago as November 2014.

The fact that even a freeze has proved impossible to agree, reconfirms the rationale for the decision.

My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
Brent crude oil, down 57%
Naphtha Europe, down 53%. “Arbitrage window to Asia shut”
Benzene Europe, down 53%. “Market is still facing the structural challenges of limited liquidity”
PTA China, down 40%. “Weaker upstream feedstock prices and diminished buying sentiments dampened discussion levels.”
HDPE US export, down 27%. “Talk of falling values in a few Latin American countries.”
¥:$, down 5%
S&P 500 stock market index, up 5%

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