Market Overview

15 November 2019

The big oil tug-of-war: Crude prices pushed up ahead of Aramco’s IPO

WTI Crude futures prices ranged $56-58 ahead of the Saudi Arabian oil giant Aramco IPO, which starts on Sunday Nov, 17th. The WTI futures rose almost 10% from the beginning of 2019.

The oil market has witnessed a lot of pressure from Saudi official for the last couple of months to push crude price up, including further production cuts by OPEC member states according to Wall Street Journal. Nigerian minister of state for petroleum resources Timipre Sylva speculated late October Saudi Arabia could apply further production cuts above agreed with OPEC+.

United States is also interested in higher oil prices while oil producers including shale oil producer have a huge leverage to US banks. According to Financial Times equity and bond investors are now shunning the smaller, independent shale explorers. Slowdown in shale oil production and OPEC+ production cuts are upside factors for crude prices. Crude prices below $50 a barrel could spur verbal intervention by Saudi Aribia, OPEC and US officials.

The good news usually followed by the bad ones. The OPEC and Saudi Arabia as its leader will face a tough challenge from competitors in 2020 already in 2020, International Energy Agency says on Friday. The non-OOPEC countries supply estimated to surge to 2.3 million barrels per day (bpd) a year to come, a 0,5 million bpd above 2019 level. The demand for OPEC oil production will slow down by 1 mln bpd to 28.9 mln bpd. Slowing demand from China could underpin Aramco’s efforts to increase exports in Asia.

So, in a few weeks to come we expect crude prices to be steady with a still little upside pressure.

Coming Sunday a price range for Aramco’s shares is to be announced. Nevertheless, a book-building period for institutional investors will last through Dec, 4th. Retail subscription will be suspended Nov 28th. Retail investors have limited shares allocation up to 0.5% of shares total. The size of the stake offered to institutional investors is still unclear. The estimates of a “most profitable company in the world” are between $1.1-2.5 trillion. Saudi Arabian Crown Prince Mohammed bin Salman would be satisfied with a valuation of between $1.6 trillion and $1.8 trillion, people familiar with the deal have told Bloomberg.

The price range for the shares will be announced this Sunday. The final pricing expected on Dec 5th.

The likely hunters for the stake in Saudi Aramco is China and Saudi billionaires who are being pressed to participate in IPO.

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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