What’s the status of the Saudi Aramco IPO?

In 2018, the stock market and banks all over the world were drooling over the prospects for the largest initial public offering in history. The leading oil company in the world is Aramco, the state-owned Saudi Arabian company that is the crown jewel of the Saudi royal family.

In his Vision 2030, Crown Prince Mohammed bin Salman, the heir to the throne, set out a plan for his nation. One of the goals is to diversify the country’s financial future away from dependence on crude oil revenues. Saudi Arabia is one of the three top oil-producers. The nation also has the second-leading reserves on the earth. The Crown Prince began the process of negotiating with banks and financial institutions around the world for an IPO of Aramco. However, when the valuation did not come close to his expectations of over $2 trillion, the Saudi prince decided to shelf the idea…

Today, Microsoft has a valuation of just over $1 trillion. Amazon and Apple have a market cap of between $900 billion and $1 trillion. Even at a discount to the Crown Prince’s expectations, Aramco would still emerge as the world’s largest company after an IPO.

Last week, the Saudis were back making noises about an IPO as the price of crude oil fell to its lowest level since early January. The United States Oil Fund LP (USO) and the United States Brent Oil Fund LP (BNO) are the two ETF products that replicate the price action in the WTI and Brent oil futures markets. Brent and WTI are the two benchmarks producers and consumers around the world use to price the energy commodity.

Oil falls below the sweet spot on Brent futures

In the leadup to the most recent meeting of the OPEC oil ministers, the Saudis and others expressed that the sweet spot for Brent crude oil was a range between the $60 and $70 per barrel level. The meeting was at the start of July.

Source: Barchart

As the chart illustrates, the price of nearby October Brent crude oil futures traded from $60.03 to $67.25 per barrel until August 5 when the price dropped down below the low end of the cartel’s desired range. October futures fell to a low at $55.88 last week and closed at the $58.53 per barrel level on Friday, August 9.

The Crown Prince still wants an IPO deal

Crown Prince Mohammed bin Salman continues to pursue an initial public offering of Saudi Aramco shares. After abandoning talks in 2018, it seems that the company is talking to banks again who are advising the company a valuation of around $1.5 trillion could be more realistic for the company. The Saudi’s had initially expressed interest to sell…

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