As a quick follow up to November’s post, I expect oil prices in early 2017 to be more stable. Given the recent run up of oil prices going into the New Year, I am not sure how much further they might rise in the first few months. Like everyone else, I will be watching the oil production response from the rest of the world and for any signs of cheating from those OPEC and non-OPEC countries that have agreed to reduce production. And, unlike many analysts and traders, I don’t expect significant cheating, at least not initially. After a few months of anticipated reduced production, analysts and traders should have a better understanding.
I hope everyone is enjoying their holiday season, and I wish everyone a happy and healthy 2017.
https://www.bloomberg.com/news/articles/2016-04-01/saudi-arabia-to-sell-stake-in-parent-of-state-oil-giant-by-2018
Saudi Arabia plans to sell a stake in the parent of its state-owned oil company, the kingdom’s deputy crown prince said, that could make it the world’s biggest publicly traded firm.The IPO, together with the re-launch of the sovereign wealth fund, are the cornerstones of a plan put forward by the young deputy crown prince that could become one of the biggest economic transformations since the fall of the Berlin Wall and the collapse of the Soviet Union more than two decades ago.“Aramco is now the biggest company in the world and it has the capability of controlling the shape of energy in the future”!
IYO, What will be the real impact of this deal/ IPO Armco ?
I largely consider Saudi Aramco IPO as a non event.
Saudi Arabia has amazing demographics with roughly one half its population below the age of 25. Contrast its demographics with those of China, Japan, Europe, Eastern Europe, or North America. Because Saudi Arabia has such a young population, it has its eyes firmly set on the future opportunities for its younger citizens.
With all the attention to fossil fuels and potential substitutes, Saudi Arabia wants to ensure that its vast oil fields are monetized. As we know, oil prices are low today. If it is able to monetize a portion of its vast natural resources, it can redeploy that capital in other areas that will provide a foundation for development of other industries. Should a substitute for oil be found, then, at least, Saudi Arabia has benefited from its earlier IPO. If, as many suspect, oil returns to much higher prices, then Saudi Arabia will benefit from the increased revenues and will still have had opportunties for other developments for its young.
My understanding is that Saudi Arabia plans to sell about 10 percent of its Saudi Aramco in an IPO. Those shareholders will have effectively no say in the management or running of the corporation. If Saudi Arabia wants to cut production, Saudi Aramco will cut. So it won’t operate as a traditional western corporation.
Because Saudi Aramco will still operate an as arm of the government, I don’t expect any significant changes. For the most part, it will be business as usual. The West, however, will have a much better understanding of Saudi Arabia’s reserves and its abilities to increase or decrease production. But outside of that knowledge, I don’t see much difference.
I hope Saudi Arabia is wildly successful in its attempt to diversify and strengthen its economy. As more knowledge, commerce, and science is spread throughout the world, the less opportunity for conflict.