Energy Prospectus

BLOOMBERG:

A Saudi Aramco director and a member of the royal council overseeing the world’s biggest oil exporter were arrested along with other top officials as Crown Prince Mohammed bin Salman seeks to strengthen his hand amid a reform push that includes a stake sale in the company next year. The board member, Ibrahim Al-Assaf, a former finance minister, was among at least 17 princes, current and former government ministers and businessmen taken into custody, according to an infographic published by Al-Eqtisadiah newspaper.

Oil climbed from the highest close in two years on the Saudi purge, which was seen to consolidate power in the hands of Crown Prince Mohammed bin Salman, who’s backed OPEC-led output cuts. Futures rose as much as 1.2% in New York, gaining for a third session. In the U.S., the rig count dropped to the lowest level since May, according to Baker Hughes.

Iraqi crude exports from the Kurdish region to Turkey's Ceyhan port were halted at 6:00 a.m. local time, according to a port agent.

BLOOMBERG: Saudi Arabia Has Its Own Way of Draining the Swamp
By Liam Denning

Saudi Arabia’s millennial-in-chief has reached the move-fast-and-break-things phase.

Prince Mohammed bin Salman’s Saturday night roundup of dozens of prominent royals and officials — all under the auspices of the king he may succeed within months — is actually a natural, if jarring, progression.The prince’s consolidation of power has been evident since June at least, when former Crown Prince Mohammed bin Nayef was taken out of the line of succession and replaced as interior minister.

While the arrest of Prince Alwaleed bin Talal generated many headlines, chiefly because he is so well known in the West, his detention wasn't the most momentous. That dubious honor belongs to Prince Miteb bin Abdullah, a son of the last king and, until this weekend, head of the country's National Guard. In Prince Mohammed's push to consolidate power and deter opponents, taking control of the ruling family's praetorian guard is a no-brainer.

It's also important to note how this crackdown was conducted. This wasn't a night of the long knives; it was done in the bright glare of a state TV broadcast. This suggests the prince was sending a signal to at least two broad constituencies.

The first was to the Saudi Arabian establishment. If anyone in the old guard wasn't aware that Prince Mohammed has effectively declared war on them, there should be no such illusions after this weekend.

The second constituency is more nebulous and intriguing.

Possibly taking a leaf from President Trump, Prince Mohammed has adopted a notably populist approach in critical areas. That the weekend's wave of arrests happened under the auspices of a newly established anti-corruption committee — headed by guess who — is an obvious marker. Marry aristocracy with oil in any setting, and inequality and corruption will flourish.

Given Saudi Arabia's persistently low scores on perceptions of corruption, addressing this is critical to any serious reform effort:

Bloomberg Market Notes:

Saudi Arabian instability is the biggest oil price risk, said Commerzbank. The biggest risk to the bank's "conservative" oil price forecast of $53/b Brent in 2018 is "a destabilization of the situation in Saudi Arabia," it said in an emailed report. "The probability of at least such a scenario increased at the weekend."

"We continue to believe we are on the path of oil market re-balancing and continue to assume $55/b WTI outlook in 2018-2019," Goldman Sachs analysts wrote in a note. The bank sees demand growth at 1.6 million b/d this year and 1.5 million b/d next year.

China crude-imports dependency, which is currently at 70%, will jump to 80% by 2020 and 85% by 2030, Li Yao, CEO of SIA Energy, said during a panel discussion at a conference in Rotterdam. Yao said the trend for China to be the biggest buyer of U.S. crude will continue going forward.

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