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Meet the 30-year-old prince emerging as oil market's 'ultimate disrupter'

MarketWatch MarketWatch 19/04/2016 By William Watts, MarketWatch

The crude-oil market may have a new boss.

The failure of world oil producers to reach a deal on a production freeze in Doha, Qatar, shouldn’t have been a major surprise. But the way the Sunday talks collapsed is underlining notions of a significant shift, with Saudi Arabia’s 30-year-old deputy crown prince, Mohammed bin Salman, playing a dominant role in setting policy for the world’s largest oil exporter.

Oil futures trimmed sharp declines but remain lower, with the U.S. benchmark futures contract  ending down 1.4%, while Brent futures settled off 0.4%. 

Prince Mohammed, who serves as the kingdom’s defense minister, appeared to win the day on Sunday, according to some analysts. Previously, Saudi oil minister Ali al-Naimi had left the door open to an agreement without the participation of Iran, whose unwillingness to strike a deal wasn’t a surprise. In the end, it was the prince’s hard-line call that prevailed.

On the eve of the meeting, Prince Mohammed told Bloomberg that Iranian participation was a must, and warned that the Saudis were capable of ramping up production by another one million barrels a day. Iran, of course, had no intention—nor had it signaled otherwise—of participating in a freeze, focusing instead on pushing production back to presanction levels.

Meet the 30-year-old titan emerging as oil market’s new top dog: Mohammed bin Salman, Saudi Arabia’s 30-year-old deputy crown prince © Provided by MarketWatch Mohammed bin Salman, Saudi Arabia’s 30-year-old deputy crown prince

In a Monday note, commodity analysts led by Helima Croft at RBC Capital Markets, deemed Prince Mohammed the “ultimate disrupter.”

The royal’s stance put Saudi Arabia at odds with its key Gulf allies, such as Qatar and Kuwait, “which normally stand shoulder to shoulder with the Kingdom on oil policy,” they wrote. It was Iran’s refusal to budge that likely hardened the Saudi resolve to stick to its guns, the RBC analysts said, leaving the assembled oil ministers to try their best to put a positive spin on the outcome.

Phil Flynn, senior market analyst at Price Futures Group, said the Sunday outcome was a “sign that the politics of OPEC have changed forever.” The 80-year-old Naimi, who has served as oil minister for nearly two decades, had long focused on ensuring Saudi Arabia’s reputation as a reliable supplier. Naimi’s focus on stable oil markets had once led him to be called “the Alan Greenspan of OPEC.”

Not everyone is convinced that there has been a major shift in Naimi’s role. The Saudis, after all, had made relatively clear that the odds of a deal were low unless Iran and others went along, said Sarah Ladislaw, director of the energy and national security program at the Center for Strategic and International Studies, a Washington think tank.

Prince Mohammed’s rising profile, however, does show that there has been “a fairly significant shift in how Saudi Arabia”is thinking about the role of oil and the shape of its economy going forward,” she said.

Prince Mohammed earlier this year this year said Riyadh was weighing selling part of state-owned Saudi Aramco, the world’s largest oil producer, in an initial public offering—a move seen as part of a broader reform of the kingdom’s economy.

Flynn, however, sees the prince’s ascendancy as a sign the Saudis are no longer reluctant to use oil as a diplomatic weapon. Indeed, many analysts view Saudi Arabia’s intensifying geopolitical rivalry with Iran as the motivating factor behind Riyadh’s hard line.

“We can no longer look to Saudi Arabia as a reliable supplier in times of crises as we have in the past. It seems this new crew of princes are more aggressive, more abrupt, less interested in oil politics and more interested in sending a message to their enemies,” Flynn wrote.

In other words, Prince Mohammed isn’t the same as the old boss. And the rest of the world will need to adjust accordingly.

William Watts is MarketWatch's deputy markets editor, based in New York. Follow him on Twitter @wlwatts.

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