Naimi is to stay as oil minister in Saudi Arabia - for now
Saudi Arabia has a new king, but Naimi and his policy stays - for now. With him at the helm, the kingdom's oil-market strategy of allowing prices to sink to curb supply from rival producers will also stay intact.
About six years ago, Ali Naimi, Saudi Arabia's oil minister since 1995, went to King Abdullah and - not for the first time - tendered his resignation.
The king refused and, to stop Naimi asking again, he is said to have told his trusted minister: "You resign when I resign."
Abdullah's death, announced by Saudi Arabia on 22 January, immediately prompted questions about whether Naimi, who is thought to be 79 years old, would now get his wish.
The answer is that Naimi stays - for now. With him at the helm, the kingdom's oil-market strategy of allowing prices to sink to curb supply from rival producers will also stay intact.
The accession to the throne of Salman, at 79 the same age as Naimi, has so far been smooth, carefully managed to assuage fears that Abdullah's death would trigger a succession crisis. The new king immediately named his brother, Muqrin, as crown prince. On Saudi television on 23 January Salman said he would continue the policies of his predecessor.
Nor, said the Saudi Press Agency on 23 January, would there be any change in oil policy or personnel at the ministry. Crude prices, which pushed higher immediately after Abdullah's death was announced, were still beneath $50 a barrel on 23 January. With stability the watchword, the market has little reason to rally much higher on the back of the news from Riyadh.
But that doesn't mean the situation won't change soon. At the oil ministry, Naimi's tenure is likely to last another few months, with a change now possible in the summer, say some analysts. The policy will outlast him, only changing sometime after a switch in personnel.
"First they need to calm everything," says Jamie Webster, senior director of global oil markets at IHS, a consultancy. "Then set a steady state. Then make changes later.
That's if there is a change. Given Abdullah's health problems in recent months, Webster said there was no doubt that Salman had been involved in oil-policy discussions, including the decision to "take the hand off the tiller", as one Saudi oil adviser described it in November.
With expectations that Naimi will retire sooner than later, the future policy direction could depend on who succeeds him. While the kingdom's oil policy is officially the responsibility of the Supreme Council for Petroleum and Minerals, chaired by the king, Naimi's will has been decisive.
Khalid al-Falih, the 54-year-old boss of state firm Saudi Aramco, is assumed to be the likeliest successor. He is thought to favour the free-market strategy adopted by the kingdom in its quest to regain market share and boost global economic growth with weaker oil prices. The oil market would eventually balance itself, Falih told the Davos investor conference on 21 January.
Prince Abdulaziz, the fourth son of King Salman and the kingdom's assistant oil minister, is the other possible candidate. There are conflicting rumours about his enthusiasm for the new marketing strategy, or the way it has been messaged. But appointing a prince to run the ministry would itself mark an unlikely change in policy. Naimi was head of Aramco, which he joined when he was 12, before his appointment as oil minister. His predecessor, Hisham Nazer, was a technocrat in the oil ministry. The oil minister before Nazer, Ahmed Zaki Yamani, in office between 1962 and 1984, was also a commoner.
However long Naimi stays in office, the pressure on the kingdom to change its policy and actively work to lift prices is going to build in the coming months.
The market has slumped by more than 60% since June 2014, and lost more than $25/b since Opec's meeting in late November, when Naimi persuaded fellow ministers that leaving output unchanged would soften prices and force out costlier production from non-Opec producers, including the US and Russia.
On the fringes of the meeting in Vienna, Saudi sources has said they expected the decision would lead to a fall of only "a few dollars", enough to threaten some marginal non-Opec production, after which the market would stabilise.
Yet even the much more severe plunge has yet to affect output, which in Russia rose to a post-Soviet high in December and in the US is expected to spurt higher in the first half of 2015 as strained producers re-focus on the highest-yield plays.
But the pain for producers is spreading. A widespread tightening of spending is underway across the industry, with capex likely to fall by 20-30%, believes Bernstein, a Wall Street research firm. By the end of the year, this should equate to sharp falls in global oil output.
For some oil-export dependent economies, that looks a long way off. In the Gulf, where Opec's GCC members have toed the line, disquiet is spreading as revenue plunges, threatening spending plans.
Mohammad bin Hamad al-Rumhy, oil minister of non-Opec producers Oman, told a Petroleum Economist conference in Kuwait on 21 January that Opec was engaged in "bad politics", adding that "I fail to understand how market share can be more important than revenue". Talking on background at the conference, many senior Gulf officials attending the conference endorsed Rumhy's implicit criticism of Naimi's policy.
Upstream spending in the Gulf is also under pressure, exemplified by Shell's decision to scrap a $6.5 billion downstream venture in Qatar.
Despite financial reserves thought to amount to $700bn-800bn, Saudi Arabia will also feel pain. Citigroup says government spending will fall by almost 18% this year, to $241bn -- an uncomfortable start for Salman's reign.
Oil prices could still fall much further in the coming months, too. Contango in the forward curve is spurring traders to buy oil for storage, giving some strength to the front end of the market. But if tank farms near capacity, prompt prices will have to fall further to widen the contango or force more oil to stay in the ground. With macro-economic worries undermining forecasts for global GDP growth this year and next, lower oil prices haven't yet translated into a significant jump in demand, either.
Naimi has remained sanguine about all this, going out of his way to tell the market that Saudi Arabia remains committed to its new marketing strategy. In early January, he said in an interview with the Middle East Economic Survey that the kingdom would even run a deficit if it had to. Saudi Arabia would hold firm even if prices fell to $20/b, he said.
See also: Continuity the theme as new king ascends to Saudi throne