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A fresh prince of OPEC brings a change in Saudi oil diplomacy

Highlights

Prince Abdulaziz tough, but deft negotiator

Prepared by years of behind-the-scenes work

Greater compliance by Iraq, Nigeria his first test

Dubai — OPEC has a new sheriff in town, Saudi energy minister Prince Abdulaziz bin Salman, who speaks softly but wields a big stick.

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Making his debut as co-chair of a key OPEC/non-OPEC committee Thursday but hardly a debutant to oil diplomacy and market management, the genteel Saudi prince used his powers of persuasion to extract public commitments from output quota dodgers Iraq and Nigeria to lower their crude production by a combined 230,000 b/d -- a step in the right direction for the coalition's efforts to shore up flagging crude prices.

The days of the OPEC kingpin Saudi Arabia tolerating free riders appears over. Abdulaziz, the half-brother of powerful Crown Prince Mohammed bin Salman, has been tasked with the challenge of shepherding the market higher to prime the pump for a high stakes public listing of state oil giant Saudi Aramco, which could transform the kingdom's economy.

Brent prices, which have hovered around $60/b for the last few weeks, are well below the $85/b that the International Monetary Fund estimates is necessary for Saudi Arabia to balance its budget.

Abdulaziz was anointed energy minister less than a week ago, replacing the highly regarded technocrat Khalid al-Falih, who fell out of favor.

But the prince, a fixture at OPEC meetings, has been embedded in Saudi oil policy for more than three decades, serving as a deputy to the long-serving oil minister Ali al-Naimi, Falih's predecessor, before holding the role of state minister for energy affairs in recent years.

Abdulaziz is known as a tough but deft negotiator who enjoys good relations with other OPEC delegations, including from Saudi Arabia's chief geopolitical rival, Iran.

"He has always been a consensus builder," OPEC Secretary General Mohammed Barkindo said in an interview. "You can see he's hitting the ground running. He has a knack for how to break impasses, bringing two opposite sides of the ball together."

Those skills were on display at Thursday's Joint Ministerial Monitoring Committee meeting in Abu Dhabi, which he co-chaired with Russian counterpart Alexander Novak.

Iraq has long been flouting its quota under the 1.2 million b/d OPEC/non-OPEC production cut accord, having unsuccessfully sought an exemption when the curbs were first negotiated in 2016. The country, which pumped a record high 4.78 million b/d in August according to OPEC, compared with its cap of 4.51 million b/d, had pleaded for understanding as it rebuilds in the aftermath of driving out the Islamic State.

But following the meeting, oil minister Thamir Ghadhban declared his commitment to OPEC's cause of rebalancing the market and not only agreed to a 175,000 b/d shrinkage in Iraq's production by October but said he would host Abdulaziz in the coming weeks in Baghdad to demonstrate his progress.

Nigeria, which has ramped up its production with new field Egina coming online, likewise fell in line, with its new oil minister, Timpre Sylva, pledging to eliminate his country's 56,000 b/d of non-compliance.

Of camel milk and Prozac

The prince brought a fresh, often jovial style to the JMMC proceedings, joking with reporters in the post-meeting press conference about his "vintage" status as a veteran OPEC emissary and camel milk drinking competitions that he said he would contest with Barkindo.

At the World Energy Congress earlier in the week, he described his demeanor as "excessively spontaneous," riffing at one point that pessimistic market forecasts from the International Energy Agency would drive him to a dependency on the antidepressant Prozac -- if he believed the projections.

It was a departure from the mostly wonkish press briefings held by Falih, who favored more central bank-like communications, signaling production policy in hopes of tamping down market volatility around OPEC decisions.

Abdulaziz, say people familiar with him, is likely to do less of that kind of talking, and the first sign of that was the canceling of the JMMC's traditional chaotic pre-meeting press scrums where reporters would crowd around ministers for 10 minutes and parrot back their comments to newswires.

The second sign Abdulaziz would be different came at the press conference after the meeting, with a frank admission that Saudi Arabia and Russia, the two largest producers in the 24-country OPEC/non-OPEC coalition by far, had been dominating the group's deliberations for too long. Several members had grown resentful of the Saudi-Russian axis, feeling squeezed out from the decision making, particularly when Falih and Novak would declare their policy alignment days or even weeks before the bloc would meet.

Abdulaziz invoked a spirit of more comity and promised more transparency.

"Myself and my colleague, Minister Novak, have awakened to a new reality, which is that we are not being too inclusive," he said. "And we should also never ever belittle the little contribution from wherever it may come."

Not an easy path

It made for great bonhomie at the JMMC meeting. But time will tell whether the prince's new approach to Saudi oil diplomacy will achieve actual results.

OPEC still faces significant headwinds -- among them US-China trade tensions, slowing oil demand growth, rising competition from shale production and the prospect of sanctions relief for Iran, which could unleash hundreds of thousands of barrels a day that would undo a significant chunk of OPEC's output cuts.

OPEC's own analysis arm on Wednesday forecast an oversupply of some 340,000 b/d in 2020 if the bloc's production remains the same.

In naming a new energy minister, Saudi Arabia is hoping that a different diplomatic tack will overcome these odds and get oil prices back to where they need them.

Prince Abdulaziz's work is just beginning.

--Herman Wang, herman.wang@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com