The Landscape Ahead for Oil’s Central Banker

By Helima Croft
Published February 27, 2020 | 1 min read

Helima Croft, Head of Global Commodity Strategy and MENA Research, thinks the listing of Saudi Aramco marks a massive step-change for the Kingdom, and says a lot about Saudi Arabia’s leadership and its future goals for the country.

A Seismic Shift

The IPO of Aramco, regarded as national treasure, represents an important milestone in the Saudi leadership’s plans for economic revolution and is one of centrepiece initiatives of Crown Prince Mohammad bin Salman’s Vision 2030, aimed at diversifying the Saudi economy and generating millions of new jobs for the its young population. The proceeds of the listing will be used to fund this sweeping modernization program, derive more income from investments through vehicles such as the Public Investment Fund, and develop the private sector.

 

The Central Bank of Oil

Saudi Arabia plays a key regulator role in the global oil market as the only country with substantial spare capacity and the most influential member of OPEC. Its production policy has swung from a market share strategy to active market management since the 2015 price collapse: after refusing to reduce production in 2014, the Kingdom agreed to a collective cut alongside Russia and other non-OPEC producers in November 2016, did another u-turn on production policy in the summer of 2018. We expect the leadership will continue to take action to avoid $30/bbl oil again.

 

Sophisticated Strategy

Saudi Aramco has leeway to implement production cuts to secure optional economics and keep market share in the crucial demand hotspots, such as China and emerging Asia. To sum up: the Kingdom’s broader market strategy has been one of picking its loss leaders and winning market share in the growth region that matters, using its dominant, heavier crudes.


Helima Croft

Helima Croft
RBC Capital Markets’ Head of Global Commodity Strategy and MENA Research


Energy