NEWS AND ANALYSIS

Incisive market commentary and expert opinion

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
 
+ Show blog menu

Categories

Menu

Expand 2017 <span class='blogcount'>(254)</span>2017 (254)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Collapse January <span class='blogcount'>(39)</span>January (39)
PM Bulletin: Gold
29 Jan 2016
AM Bulletin: BOJ takes rate negative
29 Jan 2016
PM Bulletin: BOJ in focus
28 Jan 2016
AM Bulletin: FOMC disappoints, but earnings offer support
28 Jan 2016
PM Bulletin: Facebook reports after the close
27 Jan 2016
AM Bulletin: Crude still driving equities
27 Jan 2016
PM Bulletin: Tomorrow’s FOMC meeting
26 Jan 2016
AM Bulletin: Equities slide on crude sell-off
26 Jan 2016
PM Bulletin: Silver chart
25 Jan 2016
Weekly Bulletin: Promise of further stimulus halts equity slide
25 Jan 2016
PM Bulletin: EURUSD chart
22 Jan 2016
AM Bulletin: Equities rally on ECB and oil
22 Jan 2016
PM Bulletin: Dovish Draghi triggers euro sell-off
21 Jan 2016
AM Bulletin: ECB meeting in focus
21 Jan 2016
PM Bulletin: Crude makes fresh multi-year lows
20 Jan 2016
AM Bulletin: Stocks slide as oil slumps
20 Jan 2016
PM Bulletin: Bank of Canada rate decision
19 Jan 2016
AM Bulletin: Equities surge on relief rally
19 Jan 2016
PM Bulletin: Crude oil - long-term charts
18 Jan 2016
Weekly Bulletin: China and oil weigh on equities
18 Jan 2016
PM Bulletin: Long-term gold bullion chart
15 Jan 2016
AM Bulletin: More woe from China
15 Jan 2016
Holiday Schedule: Martin Luther King Day Monday 18th January 2016
14 Jan 2016
PM Bulletin: Equities: bull or bear?
14 Jan 2016
AM Bulletin: Investors remain jittery
14 Jan 2016
PM Bulletin: The Bank’s rate decision
13 Jan 2016
AM Bulletin: Oil rebound lifts stocks
13 Jan 2016
PM Bulletin: Saudi Aramco’s IPO
12 Jan 2016
AM Bulletin: Crude closes in on $30
12 Jan 2016
PM Bulletin: US Fourth Quarter Earnings Season
11 Jan 2016
Weekly Bulletin: 2016: Trouble ahead?
11 Jan 2016
January: Non Farm Payrolls Out Today
08 Jan 2016
PM Bulletin: Another blow-out payroll number
08 Jan 2016
AM Bulletin: China effect calms markets
08 Jan 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jan 2016
AM Bulletin: Equities slump after 2nd China trading halt
07 Jan 2016
AM Bulletin: Investors remain jittery
06 Jan 2016
AM Bulletin: China steadies and Europe rallies
05 Jan 2016
AM Bulletin: Chinese equities plunge
04 Jan 2016
 
 
 Tuesday 12 January 2016

PM Bulletin: Saudi Aramco’s IPO

 

 

At the end of last week the FT reported that Saudi Arabia is considering an initial public offering (IPO) for Saudi Aramco, the kingdom’s national oil company. Estimates suggest the whole company could be worth as much as $10 trillion, or ten times the size of Exxon Mobil – the world’s largest publicly traded oil company. For additional perspective, Apple, the world’s largest publicly traded company, is worth around $550 billion. Of course, there’s no chance that the Saudis will include Saudi Aramco’s national resources in the deal. After all, it owns the biggest oil fields in the world, and produces 13% of the world’s oil. The company says it has more than 260 billion barrels of proven reserves and around 50 billion barrels of natural-gas reserves. This is more than twelve times those of Exxon Mobil. As the Saudi government has controlled the country’s oil industry since the 1970s, these are of critical importance to the kingdom. But even if Saudi Arabia sold off 5% of the company, at $500 billion that would still make it the biggest IPO in history - well above Alibaba’s $170bn valuation (the current record).

Saudi Arabia isn’t exactly a basket-case like certain Euro zone countries I can think of, so why would it consider such a move? Well, its financial situation has deteriorated quite remarkably since oil began to fall back in the summer of 2014. Oil makes up around 83% of Saudi Arabia’s exports while about 80% of the country’s government revenue comes from oil sales. Yet last year Saudi Arabia clocked up its first budget deficit since 2009. This is due to the trade-off that Saudi has made with its citizens – public services which keep the population grateful to their rulers. The International Monetary Fund (IMF) calculates that Saudi Arabia could burn through its $650 billion cash reserve by 2020 in the absence of a significant rebound in oil prices. Saudi has already withdrawn around $70 billion from its cash reserve over the last eighteen months.

But selling off the “family silver” seems extreme. Of course we won’t know what is or isn’t really up for sale for a while yet. But what does this potential sale say about oil market? Is Saudi Arabia panicking and selling out at the bottom? Or has it seen the writing on the wall as far as the future of fossil fuels is concerned? For all the talk of an eventual rebound in the oil price, perhaps we’ve already lived through “peak oil” prices. It certainly seems unlikely that we’ll see the return of $100 per barrel oil in the near or even medium term. If prices move back up towards $40/50 US shale oil production will begin to come back on tap. If it goes any higher producers look certain to sell forward to lock in $60 or so, as this is the rough level where US shale oil can be drilled for a decent profit. So $60 could be the new top. Nevertheless, that would represent a 100% increase from current levels.

Disclaimer:
Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


Add a comment Add comment            

 

 
© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.