Saudi Arabia will stick to non-intervention as oil prices rise

As oil prices halved last year, investors and traders kept expecting Saudi Arabia to intervene. It took oil minister Ali al-Naimi and his officials months to persuade everyone that the kingdom was quite content to let market forces determine prices and clean up excess supply.

Now that oil is on the way up again - Brent at $65 a barrel has risen by nearly 50 per cent from its January low - markets are once more waiting for Saudi to act: this time to stop prices from rising too rapidly so that they do not choke off a global recovery and encourage battered US shale oil producers to redeploy rigs. Some are pointing to a surge in Saudi crude output from 9.7m barrels per day in January and February to 10.3m in March and a push to regain US market share as evidence that Riyadh is indeed turning pushy.

This view is being reinforced by a dramatic power shuffle that has forced Naimi (pictured above, centre) to surrender the chairmanship of Aramco (the world's largest oil company) and put new King Salman's youngest son Mohammad in charge of a new Supreme Council atop Aramco, even though the 34-year old has no oil sector experience.

Not so fast, argues Medley Global Advisors, a macro research service owned by the FT, which warned of overly high oil prices last summer. The kingdom thinks in terms of decades and there is more continuity than change in both the Saudi personnel moves and in its oil policy.

That is not to deny the significance of the reshuffle. Two weeks ago, King Salman, 79, who inherited the throne in January, sliced through decades of political uncertainty and inertia by replacing his younger brother Muqrin, 69, as Crown Prince with his nephew Mohammad bin Nayef, a sprightly 55. Mohammad, Salman's aforementioned youngest - and favourite - son was elevated to second in line to the throne.

Immediately after his accession, the new king abolished a number of overlapping and often competing royal councils, replacing them with two overarching bodies: the Council of Political and Security Affairs under Mohammad bin Nayef, who is also interior minister; and the Council of Economic and Development Affairs under Mohammed bin Salman, who is also defence minister. In just a few months, Salman and his heirs have dramatically centralised power in their hands.

What characterises this new leadership is its relative youth and decisiveness and a more energetic Saudi nationalism - a far cry from the bickering between the 35 sons of the kingdom's founder, Abdulaziz, that has dominated domestic politics for so long. It is likely to make Saudi Arabia more assertive in the region and a more effective counterbalance to Iranian encroachment. The military intervention in Yemen is highly popular inside the kingdom.

Yet none of that means Riyadh will change an oil policy that it believes is succeeding in eliminating excess supply and reviving demand . . . without forcing the Saudis to cede market share to less rational producers. Next month's Opec meeting is therefore likely to leave the cartel's current output quotas in place while it lets the market work. As Naimi told reporters just a few days ago: "Only Allah can set the price of oil."

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