Saudi Arabia has a grand plan: sell shares of state-owned company Aramco to the public to finance its vision 2030, which will make its economy less dependent on oil.
The success of Aramco’s IPO, which promises to be the biggest in history, relies heavily on the state of the oil and equity markets, at the time for the “road show”–the marketing of IPO. The higher the oil prices, the easier is to sell it to the institutional investors at a high price.
“The actual IPO timeframe will also be subject to a number of external factors including equity market conditions, oil price outlook, and domestic capital market readiness,” Falih told a German newspaper back in January.
The trouble is that the Kingdom is not the “swing producer” in the oil market, as it used to be. Now, American frackers play that role. And they are ready to fill in any supply slack, as soon as prices head north, by bringing oil rigs back on line.
That’s what has happened in the last four weeks, as oil prices hovered near the $50 mark. Oil rigs are up for a fourth week, according to Baker Hughes BHI -1.89%, which keep a weekly tally on the number of rigs in operation—15 last week alone.
Wait there is more. There’s the return of Iran, Saudi Arabia’s old enemy to the oil market, which makes it next to impossible for the Kingdom to pull together OPEC like in the old good days.
Worse, Iran is also ready to fill the slack in the oil market as soon as oil prices head north. Last week, for instance, Iran sold light crude oil at $43.19 per barrel in the week ended on July 15, a $1.49 drop from its previous week, according to the Shana news agency.
That’s bad news for the oil market, which headed south on Monday, and for the Kingdom’s grand plan.
While it is still too early to predict where oil will be trading at a time of the Aramco IPO, one thing is clear. The oil market is in for a rough ride.