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Saudi Arabia's new energy minister won't bring major change to oil policy but faces a hard road ahead

Key Points
  • Abdulaziz, a seasoned veteran of the kingdom's delegation to OPEC with years of experience in the industry, is the first member of the ruling Al Saud family to hold a position in the massive energy ministry.
  • The International Energy Agency recently announced its lowest growth forecasts for oil demand in a decade, with demand growth for the first half of 2019 at a paltry 500,000 barrels per day.
A handout picture provided by the Saudi Press Agency (SPA), on September 9, 2019, shows the newly appointed Saudi Energy Minister Prince Abdulaziz bin Salman giving oath in the Saudi Red Sea city of Jeddah the previous night.
FAYEZ NURELDINE/AFP/Getty Images

ABU DHABI — Major changes in Saudi oil policy are unlikely as a new energy minister moves in to take up the decision-making reins for the world's largest exporter of oil.

Saudi Arabia replaced its former energy minister and the face of OPEC's production cutting program, Khalid al Falih, with Prince Abdulaziz bin Salman, a son of the king, state media announced Sunday.

Abdulaziz, a seasoned veteran of the kingdom's delegation to OPEC with years of experience in the industry, is the first member of the ruling Al Saud family to hold a position in the massive energy ministry. But country experts say they expect to see a consistent approach to oil policy, which aims to work with the organization's 14 members and its non-OPEC allies to keep markets balanced amid a particularly dim outlook for crude prices.

"We're not expecting any big changes at this point," Martin Fraenkel, president of S&P Global Platts, told CNBC's "Squawk Box" on Monday.

"The big news is that the new minister is from the royal family, and that's getting a lot of attention — but the reality is he's also a technocrat in the oil sector who's been involved in these discussions for many years. So, he's got the expertise, he's been part of these agreements and we expect continuity."

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Andy Lipow, president of Lipow Oil Associates, agrees.

"For the kingdom, it means that ... oil policies are going to remain unchanged," Lipow told CNBC.

"Saudi Arabia is committed to balancing the market and if that means that they have to rein in production, along with the non-OPEC members, they're going to continue to do so."

At the moment we can't assume Abdulaziz's oil policy will be any more driven by the monarchy than Falih's was.
Ellen Wald
author of "Saudi, Inc."

All in the family?

"It is a momentous change to place a royal atop the oil ministry. A royal family member has never run oil policy before," Ellen Wald, president of Transversal Consulting and author of the book "Saudi, Inc." told CNBC via email.

But, she added, Abdulaziz is experienced in Saudi oil policy and well respected in the oil world. He reportedly helped broker OPEC's production-cutting deal of recent years with its non-OPEC allies.

"Even if King Salman's intentions are to exert greater control in this area, we don't know if that will be the result here because Prince Abdulaziz does have a long history of working for the oil ministry on his own and is an educated professional in his own right," she said.

"At the moment we can't assume Abdulaziz's oil policy will be any more driven by the monarchy than Falih's was."

A tough oil price environment

The group in early July announced its decision, along with several non-OPEC producers including Russia, to curb output into 2020 in an effort to boost prices amid a weakening demand outlook and rising shale production in the United States. Saudi Arabia has taken on the lion's share of the cuts, pumping less than 10 million barrels per day of crude, significantly below its OPEC production target.

But the price of oil remains depressed. The U.S., now the world's largest producer, appears set to flood the oil market with even more crude, putting downward pressure on prices at a time when the market is already struggling to cope with too much supply. Concerns over the U.S.-China trade war have also weighed on global growth and demand.

"(Abdulaziz) has got a very tough road ahead of him, I must say. U.S. production will continue to go up all throughout 2019 and certainly to 2020," U.S. Deputy Energy Secretary Dan Brouillette told CNBC on Monday, when asked about his outlook for the new energy minister.

International benchmark Brent crude traded at $62.12 Monday morning, up around 0.9%, while U.S. West Texas Intermediate stood at $57.17, up more than 1.1%.

"There is no responsible move any Saudi could make at present to push up oil prices," Wald said. "The market is being driven by speculation over demand destruction, China-U.S. trade war and global macroeconomic signs."

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Saudi Arabia is expected to continue to invest in building new refineries and petrochemical plants within its borders as well as increasingly in the U.S. and Asia, pushing onward with its efforts to diversify the energy sector and increase its downstream energy focus.

Despite the diversification drive, the OPEC kingpin's challenges will remain the same, Lipow said.

"The family still has to wrestle with the same issues that (the) previous oil minister had to deal with, and that is a declining market share for OPEC producers around the world in light of increases in production, whether it's been the U.S. or Brazil or elsewhere," he said.

Pushing oil prices higher does not seem feasible at this point, even with production cuts, many analysts agree — the International Energy Agency recently announced its lowest growth forecasts for oil demand in a decade, with demand growth for the first half of 2019 at a paltry 500,000 bpd. Most see Brent crude hovering in the $50 to $60 per barrel range.

"I think they're in a really difficult situation," Lipow said, also noting new supply set to come online from the U.S. and Norway. "That's just more supply that OPEC and non-OPEC producers have to contend with."