Palm trees and buildings in Saudi Arabia

Saudi Arabia Commodities November 2019

Saudi Arabia: Oil prices recover in November; Aramco announces IPO for December

Oil prices steadily increased in recent weeks, supported by optimism linked to talks of a “phase one” trade deal between China and the United States, as well as expectations that OPEC+ production cuts will be extended. On 22 November, the OPEC oil basket traded at USD 63.7 per barrel, a 6.5% increase from the same day in October. Moreover, the price was 2.6% higher than on the same day in 2018 and up 23.5% from the start of the year.

Oil prices climbed in recent weeks on expectations that OPEC+ is set to extend the oil cap deal from the original March 2020 deadline to, at least, June 2020. The decision is widely expected to be taken at the 5–6 December meeting between OPEC and other key oil producers, which includes Russia. Stricter compliance, however, will be a key hurdle to be addressed given that some countries, chiefly Iraq and Nigeria, are pumping much more oil compared to their respective targets. While hopes of a potential trade deal between China and the United States also supported oil prices in recent weeks, there is significant uncertainty whether the two countries will be able to agree on a partial agreement before the end of this year.

Combined crude oil output among OPEC members rose markedly from 28.71 million barrels per day (mbpd) in September to 29.65 mbpd in October, mostly reflecting Saudi Arabia restoring oil production following the September drone attack on its oil facilities. Saudi output rose by 0.94 mbpd to 9.89 mbpd in October. Conversely, oil production declined markedly in Angola, Ecuador and Iraq in the same month.

Saudi Aramco, Saudi Arabia’s giant state-owned oil company, will be finally listed on the stock market in early December, nearly four years after Crown Prince Mohammed bin Salman made the announcement. This represents the cornerstone of Mohammed bin Salman’s plan to diversify the Saudi economy away from oil.

Aramco will become the world’s most valuable company at around USD 1.65 trillion. However, this is still well below the USD 2 trillion that Saudi authorities initially envisaged, while the initial public offering will only include 1.5% of Aramco’s shares, below the 5% from the initial plan. Therefore, Aramco’s listing is expected to raise around USD 25 billion, just a fraction of the USD 100 billion initially planned. Saudi Arabia has also canceled roadshows to attract global investors and authorities will mostly rely on local and Gulf investors to fund the listing. The IPO has suffered from governance worries, especially the government’s interference in Aramco’s strategy, security concerns following the September attack on Saudi’s oil facilities and a worsening international reputation since the 2018 assassination of government critic Jamal Khashoggi.

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