Saudis sharpen oil policy focus with energy ministry reshuffle

Khalid Al Falih keeps responsibility of energy policy but loses industry and mining

Saudi Energy Minister Khalid Al-Falih speaks during a news conference in Riyadh Reuters

Saudi Arabia has split its vast energy, industry and mining ministry into two to allow greater focus on crude oil as prices trade below its break-even level.

Energy Minister Khalid Al Falih will have more time to work on balancing the oil market after industry and mining were spun off from his portfolio.

Mr Al Falih ran the large portfolio since 2016 until the reshuffle was announced in royal decrees on Friday.

He has been the face of Opec diplomacy over the past three years as the group has sought to counter US shale oil flooding the markets.

The ministry reshuffle will not change oil policy because the kingdom remains focused on curbing production to balance crude markets and prop up prices, said Edward Bell, commodities analyst at lender Emirates NBD in Dubai.

“This is crunch time for the next couple of months” as crude suppliers struggle to deal with the US-China trade war and its effect on the global economy, Mr Bell said.

“They can control the supply part of the picture, but weak demand and the perception of that is what’s dictating the price.”

Saudi Arabia has cut production to fewer than 10 million barrels a day as part of its agreement with Opec.

Mr Al Falih helped to broker the deal that brought other producers such as Russia into the effort to balance markets by curbing production.

The Saudis are doing most of the work to support the deal, pumping about 500,000 barrels a day less than they pledged.

The cut in production comes as Saudi Arabia embarks on a plan to plow investment into new industries such as manufacturing and mining to reduce the government’s reliance on oil revenue.

The country needs crude to trade near $80 a barrel to balance its budget, research from the International Monetary Fund and Bloomberg Intelligence show. Brent crude closed on Friday at about $60 a barrel.

It also has to attract hundreds of billions of dollars in foreign investment through partnerships to expand its new businesses.

Mr Al Falih had been the face of Saudi efforts to bring in foreign partners by leading industrial investment initiatives meant to bring almost $500 billion into the economy.

Spinning off the industry and mining portfolios brings the Energy Ministry back to the core functions overseen by Mr Al Falih’s long-serving predecessor, Ali Al Naimi.

The role expanded when Mr Al Falih replaced Mr Al Naimi in 2016.

Handing those responsibilities to new Industry and Mineral Resources Minister, Bandar Al Khorayef, may help to speed up efforts to attract investments in mining, Mr Bell said.

A cornerstone of the Saudi economic program is the planned sale of shares in state producer Saudi Aramco.

With the initial public offering set to go ahead as early as 2020, Mr Al Falih will work on managing and promoting the sale.

It is still unclear what Aramco’s valuation will be and where the shares will list.