Is Saudi oil production policy going to continue?

The corruption crackdown in Saudi Arabia keeps oil prices elevated. The kingdom is also likely to extend output curbs ahead of OPEC meeting. Is Saudi oil production policy going to continue?

6 November, AtoZForexExpectation of Saudi’s oil production policy seemed to continue despite the powerful Crown Prince Mohammed bin Salman increasing his power through an anti-graft purge.

Saudi oil production policy details

The crackdown has led to arrests of billionaire Prince Alwaleed bin Talal among the princes, ministers, and officials. Saudi Arabia is the world’s second-largest crude producer, the biggest crude exporter. And also, the kingdom has the sparest production capacity of any oil-rich nation. According to a report, Mohammed bin Salman recently said that he backed an extension to production curbs by the world’s biggest oil-producing countries.

Similarly, UBS Wealth Management commodity analyst Giovanni Staunovo:

“As such, traders consider any unexpected political moves as “undesired”. Market investors are likely to price a risk premium until more clarity emerges how the political situation will develop.”

Other analysts also assumed that there would be any change unlikely in Saudi oil policy ahead of the OPEC meeting. It seemed that ministers will extend a pact to curb production by 1.8m barrels a day throughout 2018. Producers also seek to draw-down inventories and bolster prices.

To drive through an economic transformation for the future, the kingdom has needed higher oil prices today. Officials have also said privately they are targeting a price of about $60 a barrel. Brent crude oil moved above that level for the first time in two years nine days ago.

Analysts opinion on the kingdom oil policy

After a three-year market downturn, higher prices would not only alleviate some economic strain in the kingdom. But secure a higher valuation for Saudi Aramco, the state energy giant, and its planned IPO in 2018.

Saudi Aramco flotation also is known as the centerpiece of Prince Mohammed’s economic reform agenda. A former adviser to President Barack Obama, Jason Bordoff, said there was an “urgency of showing economic reform results. “(That makes) higher oil prices all the more important to boost the economy and help the Aramco IPO,” Bordoff said.

However, Prince Mohammed has led a massive shift in energy policy over the past year. He spearheaded an Opec-led push to curb global supplies, alongside heads of state in Russia and Iran who came together to agree cuts deal to try and boost the price.

An energy consultant and a former adviser to President George W Bush, McNally, said he did not expect any change in oil policy.

“The Saudi course on oil policy is set — extend and tighten until excess stocks drain — and should not be disturbed by these events,” he said.

McNally added that Saudi Arabia still faced challenges in the oil market with supply expected to increase next year.

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