By Summer Said, Ahmed Al Omran and Bill Spindle @ WSJ

May 7, 2016 4:57 p.m. ET

RIYADH—Saudi Arabia dismissed its long-serving oil minister Ali al-Naimi on Saturday, marking the departure of one of the industry’s most powerful figures, as the country grapples with weak oil prices.

Mr. Naimi, who had been the kingdom’s oil minister since 1995, has been a strong voice against lowering Saudi Arabia’s production when prices fall, a move away from its past tactics. He moved the Organization of the Petroleum Exporting Countries to keep pumping oil at a rapid clip despite a global supply glut, a decision that has weighed on crude-oil markets and depressed prices.

He will be succeeded by Khalid al-Falih, chairman of state oil company Saudi Arabian Oil Co., better known as Saudi Aramco.

Mr. Naimi, reached on his cellphone, declined to take questions. Mr. Falih couldn’t be reached for comment.

The royal decree, announced via state media, was part of a wider government reshuffle that includes a restructuring of the oil ministry, which has been renamed the Ministry of Energy, Industry and Mineral Resources. It comes less than two weeks after Saudi Arabia unveiled an ambitious economic reform program aimed at reducing the kingdom’s dependence on oil revenue.

The collapse of oil prices has hit the world’s biggest energy companies hard and has hurt the budgets of oil-dependent countries. In Saudi Arabia, the world’s largest oil exporter, petroleum accounted for almost three-quarters of state revenues last year.

The 80-year-old Mr. Naimi had for some time wanted to retire. His departure and Mr. Falih’s appointment were widely expected, suggesting market reaction to the moves is likely to be calm, said Jason Bordoff, director of Columbia University’s Center on Global Energy Policy.

“Khalid al-Falih has been a key part of the team making these decision for many years,” he said. “It represents a continuation of the path they’ve been on.”

Mr. Falih has been within the inner circle of Saudi oil policy-making for a long time. He was being groomed for the top post for months, according to people familiar with the matter. The decree said Mr. Falih was relieved from his other post of health minister.

Jim Krane, a fellow at Rice University’s Baker Institute, said Mr. Falih’s appointment to head an oil ministry broadened to include electricity and other resources would allow the kingdom to better coordinate its domestic energy policy with its oil export policy. In the past, the two have often worked at cross-purposes, as domestic consumption of heavily subsidized energy has risen, undermining the state oil company’s ability to expand exports.

Saudi Arabia’s powerful Deputy Crown Prince Mohammed Bin Salman has already pushed through cuts in those subsidies, effectively raising the price of gasoline and other fuels for Saudi citizens. Meanwhile, the kingdom has expanded its refining capacity, creating new internal demand for crude oil.

“They need a ministry that can take a more holistic approach to energy in the kingdom,”
Mr. Krane said. “They’re working to rationalize their energy policy.”

Mr. Naimi, known in oil industry circles as a technocrat’s technocrat, appeared to be losing his grasp on power when a meeting of major oil producers aimed at reaching an output-freeze agreement collapsed less than a month ago.

The Saudi oil ministry had signaled it was ready to reach a deal with counterparts from Russia, Qatar and Venezuela to freeze their output at January levels. But the efforts were scuttled because the prince wasn’t willing to agree to a deal that didn’t include Iran, which had said it wouldn’t participate as it ramps up output following the end of Western sanctions over its nuclear program.

“It was very clear that Naimi was being overruled by a royal for the first time in two decades and that was a very humbling experience for him,” said an oil minister who attended the meeting.

For Mr. Naimi, that marked the end, according to one of his assistants. “We all knew after the Doha meeting that it was only a matter of time before he is gone,” one of Mr. Naimi’s assistants said.

Throughout his career, Mr. Naimi has worked to avoid a repeat of the mistake of one of his predecessors, Sheikh Zaki Yamani, who was dismissed in 1986 as he unsuccessfully tried to fight an oil-price collapse by unilaterally reducing Saudi output.

Mr. Naimi was named oil minister in 1995 by Saudi King Fahd bin Abdulaziz Al Saud. He took office at an uncomfortable time for the kingdom and OPEC, which it dominates. At the time, depressed oil prices had failed to rise enough to save oil producers from a continuing cash crisis.

But Mr. Naimi soon carved out an identity and transformed himself from a competent manager into one of the world’s key economic policy makers.

As de facto head of OPEC, among the first changes Mr. Naimi made was to turn its periodic gatherings into corporate-style events. He was often successful at achieving Saudi Arabia’s goals, while managing the expectations of those of adversaries within OPEC, such as Iran and Venezuela.

The jury is still out on Mr. Naimi’s signature policy of keeping the spigots open during periods of low prices. Prices fell farther and faster than many in Saudi Arabia expected, hitting a 13-year low in January of about $27 a barrel.

At a conference in Houston in February, Mr. Naimi said the kingdom was prepared for oil prices below $20 a barrel and wouldn’t change its strategy soon. The country is producing near-record production of more than 10 million barrels a day.

Mr. Naimi reasoned that a period of low prices is needed to force producers that rely on high prices to cut back.

When asked when the supply glut would end, he said: “When? I don’t know, but it’s going to end.”

Full Story: http://www.wsj.com/articles/saudi-arabias-powerful-oil-minister-ali-al-naimi-is-fired-1462632035