World’s Biggest IPO in Doubt

The oil price is arguably the most manipulated of the major commodities.

The Organization of the Petroleum Exporting Countries (OPEC) has long tried to keep prices above where market forces — supply and demand — would pin it. They do this simply by cutting the supply end of the equation.

Cheating among the member nations is often rampant. But since mid-2017, most OPEC nations have actually followed through and reduced their output.

To date, this has had the desired effect. At least from OPEC’s point of view.

As you can see on the one-year chart below, Brent crude topped US$60 per barrel on 27 October 2017. That was after hitting a low of US$46.02 on 20 June.

Source: Bloomberg

Brent hasn’t dropped below US$60 a barrel since 27 October. But that could change soon.

US oil producers are still pumping at near record levels. And the latest news from Saudi Arabia indicates the Saudis may not have the incentive to continue the hefty supply cuts they pushed through OPEC in recent months.

Why?

Because Saudi Arabia is pulling out of its plans to list their state-owned oil giant Aramco in the US in what would have been the world’s biggest initial public offering (IPO). Now they are likely to only list it on the Saudi stock exchange.

Apparently, the Saudis are concerned with the legal risks involved with listing in the US. And supposedly the higher price of oil means they’re not as strapped for cash.

But if the US$100 billion (or more) IPO is off the table, the Saudis have less incentive to cut their own production. Even if that means seeing the price of oil fall back into the mid US$50 range. While the IPO plans were still in place, they were incentivised by the fact that the higher the price of oil, the more money they could get by selling part of Aramco.

Time will tell if the Saudis open their oil taps wider now that the IPO looks to be off the table.

But you certainly won’t hear any complaints at the petrol station if the price of fuel comes back down.

Bernd Struben

Bernd Struben

Bernd Struben is the lead editor at The Australian Tribune. Bernd makes use of his extensive network to bring you the top stories you need to know about each day. Stories the mainstream may miss. Or bury somewhere you’re unlikely to ever read them. Bernd studied aerospace engineering and journalism at the University of Michigan, before graduating with a degree in economics. Over the past two decades he’s worked in media, management, and finance in the US, the Caribbean, Europe, and Australia. His other role, as the editor of the Port Phillip Insider, puts him in a unique position to read Australia’s most exclusive financial advice. Some of which he shares with readers of The Australian Tribune for free.
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