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Oil prices: What will Saudi Arabia do?
Jun 28:
Now that oil prices have plunged back again, what would Saudi Arabia do?
8The kingdom wants to diversify its economy by investing in non-oil sectors.
8Unfortunately, the downturn in oil prices has left Saudi Arabia cash -strapped. In order to achieve its goals, Saudi Arabia needs its crown jewel, Saudi Aramco, to have a successful IPO.
8Aramco’s valuation is highly dependent on oil prices.
8Thus, it is reasonable to assume that the kingdom will do whatever it takes to support them. At present, Saudi Arabia is cutting around 600 thousand bpd.
8In the 1980s, the kingdom curtailed production by more than 6.7 million bpd.
8Although improbable, a further reduction in output is not out of the question.
8If that did occur then rebalancing would be pulled forward, sentiment would improve and prices could skyrocket.
8Ironically however, oil prices are always cyclical and what goes down must come up as seems to be evident from this statement made in 1928, which is reminiscent of what is happening today.
“The petroleum industry has not of late years earned a return on its investment sufficient to enable it to continue to carry in the future the burden and responsibilities placed upon it in the public’s interest, and it would seem impossible to do so unless present conditions are changed.”
– Anglo-Persian Oil Company (now BP) – 18 August
Click on Report for more Details.
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8The kingdom wants to diversify its economy by investing in non-oil sectors.
8Unfortunately, the downturn in oil prices has left Saudi Arabia cash -strapped. In order to achieve its goals, Saudi Arabia needs its crown jewel, Saudi Aramco, to have a successful IPO.
8Aramco’s valuation is highly dependent on oil prices.
8Thus, it is reasonable to assume that the kingdom will do whatever it takes to support them. At present, Saudi Arabia is cutting around 600 thousand bpd.
8In the 1980s, the kingdom curtailed production by more than 6.7 million bpd.
8Although improbable, a further reduction in output is not out of the question.
8If that did occur then rebalancing would be pulled forward, sentiment would improve and prices could skyrocket.
8Ironically however, oil prices are always cyclical and what goes down must come up as seems to be evident from this statement made in 1928, which is reminiscent of what is happening today.
“The petroleum industry has not of late years earned a return on its investment sufficient to enable it to continue to carry in the future the burden and responsibilities placed upon it in the public’s interest, and it would seem impossible to do so unless present conditions are changed.”
– Anglo-Persian Oil Company (now BP) – 18 August
Click on Report for more Details.
