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What Can Investors Expect From The New Saudi Oil Minister?

May 9, 2016 2:30 pm
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Over the weekend, Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman named Khalid al-Falih as the nation's new energy minister. The change marks the first transition at the position since 1995.

For U.S. oil investors, the impact of Falih’s appointment on the global oil market remains uncertain, but some producers see any change as a potential positive.

The policies of Falih’s predecessor, 80-year-old Ali Al-Naimi, led to the global collapse in oil prices and the current oversupplied market. Oil investors are hoping that a fresh face and perspective could signal a change in Saudi policy.

“He totally underestimated the resilience of the shale producers and their ability to achieve cost efficiency,” said Praveen Kumar, executive director of the University of Houston Global Energy Management Institute.

“They thought it would take six months and that timing was completely off… Al-Naimi’s been there for decades. Getting him out allows the new power centers in Saudi Arabia to devise the long-term strategy for production and its role in OPEC,” Kumar noted.

Related Link: OPEC Production Freeze Plan Now Off The Table

Al-Falih has at least a tangential tie to U.S. oil territory: He obtained his degree in mechanical engineering from Texas A&M in 1982.

It’s doubtful that Al-Falih’s Aggie spirit will impact his oil policies. In the past, Saudi Arabia has focused on manipulating oil prices by altering its output, but Al-Falih has said that economic reform, not oil prices, is the focus of the nation’s new leadership.

The oil market certainly didn’t have a positive initial reaction to Al-Falih’s appointment. Shares of the United States Oil Fund LP (ETF) (NYSE: USO) are down 2.4 percent on Monday morning.

Disclosure: The author holds no position in the stocks mentioned.

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