Date : Wed, November 13 , 2019
Author : Patti Domm\
On December 5, the initial public offering of Saudi Arabia’s big oil company could be priced right in the middle of what could be a volatile period for oil. Saudi Aramco has plans to price it’s IPO. This happens to fall similarly on the same day OPEC starts its regular two-day meeting in Vienna. Adding on, the Aramco stock, whom is equivalent to 0.5% of the company, is expected to trade on the Saudi Tadawul Exchange days later. The market talk has placed emphasis on Saudi Arabia’s desire and intent for much higher, stable and steadier prices.
Saudi Arabia Crown Prince Mohammed bin Salman has been on the constant lookout for a $2 trillion value for Aramco. However, bankers have mentioned that it is relatively worth more than $1.5 trillion. According to reports, Aramco worth is estimated $1.5 trillion at an oil price of $45; $1.76 trillion at $65, and $2.1 trillion at $75 per barrel.
Experts pointed out possibilities of conflicts at OPEC’s meet during this annual. Saudi Arabia has been involved in attempts to attract producers such as Iraq and Nigeria. Unfortunately, whom are not complying with the production cuts OPEC agreed to with Russia and all others. Few of the traders expect the agreed cuts of 1.2 million barrels a day to be increased. However, Saudi Arabia is reportedly not in favour of changing the target until at least March, when the agreement runs out.
“Obviously, the biggest thing that’s going to decide where crude prices go in the next two or three weeks is going to be the OPEC meeting,”
“My guess is the next two or three weeks we’re going to hear people staking out positions from a commodities standpoint.”
“It looks like Russia is being a little bit antsy and not willing to move, and you have the Aramco IPO is pretty much intertwined with that meeting,”
“OPEC members are overproducing by about 500,000 barrels a day, and non U.S. producers outside of OPEC could increase their output by between 400,000 and 600,000 barrels a day next year. U.S. producers could increase production by 700,000 barrels a day or more next year”.
Above was quoted by Michael Bradley, energy analyst with Tudor, Pickering Holt.
Adding on to that, he also pointed out that a handful of traders are searching for a potential breakthrough in production, today. Although Reuters has quoted sources saying Saudi Arabia doesn’t expect to alter production targets which expires in March next year. Underwriters are expected to run a book-building process between Nov. 17 and Dec. 4, during which time institutional investors will be expected to pass orders.
Expectations are evident for reduced demand growth and increased supply from the U.S. and elsewhere. Not forgetting, trade tensions between the U.S. and China have been a factor in holding down prices. Brent crude, the international benchmark, has been trading mostly below $65 a barrel since June. Prior to which, it hit a high of just under $75 in April.
As, U.S., Brazil, Norway and Ghana increase production, oil prices have been lagging. Whilst, OPEC and its allies are cutting back. If there is a trade deal, demand growth could increase sharply by 1.3 million or 1.4 million barrels per day next year. Perhaps that would help to lift the prices. Without it, demand could grow less than 1 million barrels per day as quoted by Bradley.
Meanwhile, OPEC plus, that includes Russia, has been trying to keep the price steady and higher. However, trade tensions have been a wild card weighing on the price. Also, president Donald Trump and China President Xi Jinping are widely expected to come to mutual terms on a first phase trade deal by mid-December. There has been speculation they could meet at the NATO meeting on December 3 and 4.
If there is a deal, that would be a powerful upside catalyst for oil, and OPEC could be less likely to quibble over production levels. If there’s no deal, a new wave of tariffs on Chinese goods are expected Dec. 15.
“It’s a high wire act,”
“They run the risk at the same time of their meeting falling apart, and the oil price tanking. It’s a fraught history. To think this is shooting fish in a barrel is an absurd notion to me.”
As above quoted by John Kilduff founding partner of Again Capital. Prior to starting his company, he was Vice President and co-head of MF Global and Senior VP of Energy Risk Management Group at Fimat USA.
John Kilduff had also pointed out that while Iraq and Nigeria have been overproducing, Venezuela and Iran have been extensively complying. Both countries are currently being sanctioned by the U.S. Last Monday, energy minister of Oman said that OPEC should broaden its current deal. However, this is quite unlikely to aggravate the cuts.
“They don’t want the price to collapse going into the meeting, but they don’t necessarily need it to go much higher,” This was quoted by a source, familiar with OPEC’s thinking. It is predicted that Saudi Arabia has a long-term view. Its oil company’s stock price could fluctuate with oil prices but that longer term, it’s going higher.
“Saudi probably wants a price above $65 per barrel for Brent going into the pricing, but in the long run it would be fine at $60 to $65. Brent was at $62.19 per barrel in late trading on Monday”.
The above mentioned, quoted by Michael Bradley.
In relation to the attack on its facilities in September besides oil price risk, Aramco highlighted other risks for investors in its report of a sharp drop in profits. Still, Aramco resumed production within weeks of the attack on its Abqaiq and Khurais facilities but it had to buy imported oil for its refineries. Aramco said its quarterly revenue decreased in line with oil prices. However, its profits decreased from $30.3 billion to $21.2 billion due to purchases and costs.
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