This report and others like it are available to subscribers of Stratas Advisors’ Financial, Geopolitical Risk Outlook, Short-Term Price Outlook and Executive Dialogue services.
On June 21, it was announced that King Salman of Saudi Arabia promoted his son—31-year-old Mohammed bin Salman—to be next in line to the throne. While not a shocking occurrence given early signs seen from the kingdom over the last two years, it further solidifies trends pushing the kingdom into a world of greater economic and geopolitical risk that are likely necessary for the regime to weather a time of existential uncertainty due to regional conflict, terrorism and low oil prices. Here are the implications for the oil market:
- Economic diversification will continue to be in focus with Prince Mohammed’s ambitions to push the kingdom away from pure petro-state status. By spearheading both the Saudi IPO and Saudi Vision 2030, it becomes clear that there will be a doubling down on this approach. While Stratas Advisors contends that the goals within the strategy are overly ambitious given current economic, demographic and cultural challenges within Saudi Arabia, this vision will continue to impact practical policy outcomes.
- The fight for regional supremacy will accelerate as has been evidenced by increasing tensions with Iran and Qatar. The Saudi/Iran conflict continues to heat up through a combination of rhetoric and the conflict within Yemen. As defense minister, Prince Mohammad has been a strong proponent of aggressive military action within Yemen and has taken a hardline position against Iran. Prince Mohammed was also one of the driving forces behind the Saudi (and broader Gulf Cooperation Council) decision to sever diplomatic ties with Qatar over that country’s alleged ties to terrorism.
- OPEC cuts are likely to be sustained and potentially deepened to support both economic and defense activities across the region. While Prince Mohammed has waffled on the nation’s oil strategy in the past, military might and economic diversification will demand longer and potentially deeper cuts through OPEC in an effort to drive higher revenue to support those activities.
- Ties to the West will strengthen, as evidenced by Prince Mohammad’s support for liberalization on a number of social issues (particularly toward women), attempts to fight terrorism in the region and the country’s hardline stance on Iran. Saudi Arabia will continue to support the regional anti-terrorism goals of the Trump administration while also pushing for a restoration of Iran sanctions.
The ascension of Prince Mohammed will likely drive greater regional volatility as the kingdom becomes more likely to enact and remain engaged on his agenda, but not immediately. A rise in regional conflict (specifically with Iran) and a focus on OPEC cuts are both bullish price signals for crude, but it will take six to nine months for any of those signals to materialize in the price. The market remains laser-focused market oversupply in the short term, and is caught in a bearish channel that only strong inventory draw data will be able to escape.
Recommended Reading
TPH: Lower 48 to Shed Rigs Through 3Q Before Gas Plays Rebound
2024-03-13 - TPH&Co. analysis shows the Permian Basin will lose rigs near term, but as activity in gassy plays ticks up later this year, the Permian may be headed towards muted activity into 2025.
For Sale, Again: Oily Northern Midland’s HighPeak Energy
2024-03-08 - The E&P is looking to hitch a ride on heated, renewed Permian Basin M&A.
E&P Highlights: Feb. 26, 2024
2024-02-26 - Here’s a roundup of the latest E&P headlines, including interest in some projects changing hands and new contract awards.
Gibson, SOGDC to Develop Oil, Gas Facilities at Industrial Park in Malaysia
2024-02-14 - Sabah Oil & Gas Development Corp. says its collaboration with Gibson Shipbrokers will unlock energy availability for domestic and international markets.
E&P Highlights: Feb. 16, 2024
2024-02-19 - From the mobile offshore production unit arriving at the Nong Yao Field offshore Thailand to approval for the Castorone vessel to resume operations, below is a compilation of the latest headlines in the E&P space.