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Why Saudi Arabia Split Up Its Energy Ministry

Irina Slav

Saudi Arabia will split its Energy, Industry, and Mining Ministry, with the current minister, Khalid al-Falih, remaining at the helm of energy policies. Industry and mining will be the prerogative of a new minister, to head a new ministry.

The new industry and mining minister will be Bandar Alkhorayef, a businessman, and will take office starting in January of next year, Reuters reports.

Bloomberg notes that the reshuffle comes amid Saudi Arabia’s continued efforts to prop up oil prices as they continue to trade substantially below its breakeven price, which calculations have pegged at above US$80 a barrel, despite the Kingdom having some of the lowest production costs.

With the U.S.-China trade war raging on and no deal in sight, worry about global oil demand has become chronic now, keeping a lid on prices. Surging shale production in the United States has also been a major headache for OPEC and its partners, and relief from this headache has been hard to come by.

Commenting on the government reshuffle news and its implications for price control, Daniel Gerber, chief executive of PetroLogistics, told Oilprice.com, “Saudi Arabia has strategically reduced exports to the USA in a bid to reign in U.S. inventories, which the market watches closely as a barometer of global supply and demand.”

However, Gerber added, “Reducing exports further would cut off supplies to long-standing Saudi customers. Therefore, Saudi Arabia has a limited ability to increase prices from current levels materially. But they indeed maintain the ability to increase production, meaning that they retain massive influence on marketing pricing by having the spare production capacity of more than 2 mb/d.”

“This is crunch time now for the next couple of months,” a commodities analyst told Bloomberg. “They can control the supply part of the picture, but weak demand and the perception of that is what’s dictating the price,” Edward Bell from Emirates NBD said.

Related:OPEC Abandons ‘’Whatever It Takes Strategy’’, Boosts Production

Saudi Arabia has been cutting more production than it had been obliged to under the OPEC+ agreement from last December but it has not been enough as U.S. shale oil output continues rising fast, with the total national to date exceeding 12 million bpd, according to the latest EIA weekly estimate.

Demand, meanwhile, continues to be lukewarm, with forecasters revising their projections for the near term downward because of concern about slowing economic growth in key regions, including China.

Whether or not the split will have any positive effect on Saudi oil revenues is questionable, but it would certainly narrow Al-Falih’s focus to the Kingdom’s oil industry alone.

By Irina Slav for Oilprice.com

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