The new Saudi king’s decision to keep Ali al-Naimi in his job as oil minister signalled to energy markets that the world’s top crude exporter would not flinch from its oil policy of refusing to cut output as it fiercely guards market share.
Naimi persuaded OPEC members to maintain their oil policy despite potential drops in oil prices, prioritising competitiveness against external producers like U.S. shale drillers and Russia. Following his cabinet reshuffle on Thursday, King Salman faced challenges in appointing experienced leaders for the kingdom’s oil sector during these turbulent times.
After all, 79-year-old Naimi has seen at least three price crashes during his two decades as oil minister. “You can’t beat experience, and Ali al-Naimi has loads of it. He earned his wings in the 70s and 80s at Aramco and has now gone through three iterations of a crude price cycle: early 1980s, late 1990s, and the current one,” said Yasser Elguindi from economic consultants Medley Global Advisors.
That experience and its international respect are vital in persuading OPEC states with less financial depth than Saudi Arabia to maintain output during the crisis. The argument is made that it’s unreasonable for an efficient producer to cut production while less efficient counterparts continue to operate. Naimi told the Middle East Economic Survey in December. “If I reduce, what will happen to my market share? The price will go up, and the Russians, the Brazilians, and U.S. shale oil producers will take my share.”
But since November’s OPEC decision not to reduce output, some members have privately questioned whether this was the right approach.
Oil prices — down by more than half since June — have collapsed by more than $20 a barrel since November’s meeting to depths unexpected even by core Gulf OPEC producers who had led the decision despite a call for a cut by others.
The Strategic Value of OPEC Members Working Together
Oman’s oil minister criticised the decision outside OPEC for causing market volatility that does not benefit oil producers, while energy investors are monitoring Saudi Arabia’s oil policy response to price fluctuations.
The kingdom significantly curtailed its oil production from over 10 million barrels per day in 1980 to under 2.5 million BPD in 1985 in an attempt to stabilise falling prices, resulting in the dismissal of Oil Minister Ahmed Zaki Yamani. Naimi has successfully managed several price crashes through decisive measures.
In the late 1990s, OPEC, led by him, increased supply during Asia’s economic collapse and coordinated with non-OPEC producers for production cuts, effectively managing a price collapse and gaining their support again in late 2001.
In 2008, Naimi oversaw OPEC’s largest supply cut when oil prices fell to the low $30s. Analysts believe he may now diverge from established policy in response to the current crisis, while the Al Saud family’s political motivations dictate Saudi oil policy. They prioritise non-interference in the market and maintain significant spare capacity for stabilisation, allowing Naimi considerable autonomy in policy implementation.
Having joined Saudi Aramco at age 12 as an office boy, he rose to CEO and became minister of oil in 1995. As a respected technocrat, he influences OPEC policy using his market knowledge while staying apolitical.
Some people familiar with Naimi have said that he has considered retiring for years. But that is unlikely to happen until there are at least some signs of market recovery, said Olivier Jakob from Petromatrix consultancy. “If Naimi goes, I would think that he prefers to go after there is some order returns to power in OPEC.”
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