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Climate

Saudi Arabia’s ‘prickly prince’ of oil bristles as crude price slides

Prince Abdulaziz bin Salman spent almost 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 of his choosing: traders have recently taken to calling him the “prickly prince”.

From starting oil price wars with Russia in 2020 to contributing to strained US-Saudi relations last year, Prince Abdulaziz has been an assertive steward of the kingdom’s oil policy, but one beset by a thin-skinned tendency to react to slights.

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 got many of the big market calls right, reinforcing Saudi influence over the oil market and its Opec+ alliance with Moscow, which has endured despite Russia’s full-scale invasion of Ukraine.

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

The latest forceful move came this week when a swath of journalists, including the entire teams from Reuters and Bloomberg, were banned from a crucial meeting set to take place on Sunday at Opec’s Vienna headquarters. It is the first time that Opec, through decades of wars, price spikes and crashes, has excluded news organisations en masse.

The decision by Prince Abdulaziz stemmed, people close to the minister said, from his perception that his market view was not being given a fair airing. He believed this was contributing to the fall in the benchmark Brent crude price towards $70 a barrel over recent weeks. But the decision also reflected, they said, a royal temperament unaccustomed to criticism and to not getting his own way.

Yet turning on 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 falling despite two production cuts in eight months, resorting to blaming the messenger does not inspire confidence.

Raad Alkadiri, a veteran Opec-watcher at Eurasia Group, said part of Saudi Arabia’s annoyance stemmed from what it saw as a mismatch between the underlying fundamentals of the market — which Opec can influence — and trader sentiment, which is a tougher beast to corral.

“You can argue Opec+ have managed the market pretty well, but there’s just an utter frustration that the success of the management of the fundamentals is being hammered time and again by sentiment,” Alkadiri said. “That makes it difficult for Opec to reinforce its credibility.”

For those close to the prince, there was a sense of disappointment. Many had projected a strong oil market that would boost the revenues that Crown Prince Mohammed needs to implement his economic reforms. Saudi Arabia requires an oil price above $80 a barrel in order to balance its budget, according to the IMF, and fund some of the “giga-projects” the crown prince hopes can transform its 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 as China’s economy reopened. The International Energy Agency and Opec itself also project that the market will tighten significantly in the second half of 2023, which should boost prices.

But traders seem unwilling to believe it. Prices have rallied only for brief periods, such as when Opec and its allies announced a surprise voluntary production cut in April, only to slip lower again.

That cut was straight from the playbook of Prince Abdulaziz, who likes to keep the market on its toes, an approach some see as being at odds with Opec’s desire to be a steadying “central bank of oil”.

Traders will be watching closely this weekend to see whether Prince Abdulaziz pushes for a further production cut or other measures to prop up the price, or if the group adopts a “wait and see” approach. The latter seemed most likely only a week ago, according to analysts and Opec delegates, but the chance of action has increased after prices slipped lower again in recent days.

“Everything is under discussion,” said one senior Opec delegate from the Gulf. “Still nothing is clear.”

Ministers from Opec met briefly on Saturday afternoon, ahead of the Opec+ meeting — which will include Russia and other allies — where production policy will be decided. Opec delegates said a cut of up to 1mn barrels a day would probably be discussed on Sunday, but nothing had been agreed upon.

Prince Abdulaziz’s only comment to the press on Saturday was to remark on the fine weather in Vienna. He left Opec’s headquarters smiling and holding hands with the UAE minister, Suhail al Mazrouei.

While people close to Prince Abdulaziz say he has generally remained in good spirits, with his dry humour on display, he has taken to lashing out. He warned short sellers betting against the oil price — who he once said would be “ouching like hell” if they doubted him — to “watch out” once again last month.

He then laid into the IEA, a group that Opec has spent years fostering dialogue with to find common ground between oil producers and consumers, describing it as having a “special talent” for getting forecasts wrong.

The danger for Saudi Arabia, traders say, is that Prince Abdulaziz has now in effect thrown down the gauntlet to oil speculators. If he does not push for another production cut, then prices could fall further.

If Saudi Arabia does lead Opec into cuts, there is no guarantee that Russia will follow, as Moscow tries to keep its exports going despite a swath of western measures designed to restrict the energy revenues flowing into its war chest.

“Further oil price declines towards $70 a barrel for Brent could increase the likelihood of an additional cut by some Opec+ members . . . though Russia is unlikely to be one of them,” said analysts at Citigroup.

One option is to alter production baselines — the maximum level countries can produce at, from which the size of individual production cuts is derived — for Opec+ members, according to two people close to the talks.

The United Arab Emirates has bristled in the recent past at what it believes to be a production baseline that underestimates its real output capacity. A higher baseline would strengthen its position in Opec long-term, even if it agreed to cut further for now. Some analysts believe the issue is too contentious for Prince Abdulaziz to tackle, however, and that it will be pushed back.

“I don’t envy Opec this weekend,” said Alkadiri of Eurasia Group. “They’re caught between a rock and a hard place.”

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