Is it the End of OPEC as We Know it?

05/24/2016 9:13 am EST


Michael Berger

President & Founder,

There have been several major changes in Saudi Arabia over the last month and these changes have distanced the country away from all other OPEC members; Michael Berger the Associate Editor of, discusses these changes and highlights stocks that he believes will be able to survive the low oil price environment.

It’s the end of OPEC as we know it, and no one feels fine…except for Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman.

There have been two significant changes in Saudi Arabia over the last month. The first was the country’s new economic plan known as Vision 2030 which was promoted by Deputy Crown Prince Salman.

Less than two weeks later, Salman replaced Ali al-Naimi who was the most influential voice in OPEC and the architect of current Saudi oil policy.

Vision 2030 Raises Concerns

Under Vision 2030, Saudi Arabia plans to decrease its dependence on oil revenue. This will limit the country’s need to manage oil prices.

The planned privatization of Saudi Arabian Oil Co. will also make Saudi Arabia the only member of OPEC that does have full ownership of its national oil company.

Several analysts have said that opening up the company to private investment could lead to internal tensions over production policy because the company, which wants to operate in the best interests of shareholders, will not be producing at full capacity.

Following the Footsteps of Ali al-Naimi

Less than a month ago, Prince Mohammed said, “We don’t care about oil prices. $30 or $70, they are all the same to us. We have our own programs that don’t need high oil prices.”

This rhetoric follows the footsteps of Prince Mohammed’s predecessor, Ali al-Naimi. In late February, Ali al-Naimi said, “It may sound harsh, and unfortunately it is, but it is the most efficient way to rebalance markets. Cutting low cost production to subsidize higher cost supplies only delays an inevitable reckoning.”

According to Al-Naimi, the market will eventually rebalance because high cost producers will have to cut costs, borrow, or liquidate to deal with the weak oil price environment. He also said that he does not know when the oil price sell-off will end.

Future in Focus

While commodity price volatility should continue to act as a headwind, we recommend incorporating energy stocks and MLPs into any diversified portfolio.

Some of the companies that we expect to outperform the market on a longer-term basis are: Concho Resources (CXO), Occidental Petroleum Corporation (OXY), Halliburton (HAL), Baker Hughes, Inc. (BHI), Tesoro Logistics LP (TLLP), Memorial Resource Development Corp. (MRD), and Enterprise Product Partners (EPD).

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