GS "Talking Up Oil" Now That The Saudi Aramco IPO Is Being Finalized -- May 16, 2016

Updates

Later, 2:10 p.m. Central Time: GS is calling it a "supply deficit." I have not seen the GS definition for "supply deficit." It certainly is not the same as  my definition. To me, a "supply deficit" means the demand is higher than the supply. If that were true for oil, the spot price would certainly be a huge story and we are not seeing a corresponding story "spot price." The gasoline lines we saw during the "manufactured" OPEC embargo back in the 1970's -- or whenever it was -- now that's what a "supply deficit" looks like to me. When oil moves from around $46/bbl to around $47/bbl, that  hardly seems to suggest traders take "supply deficit" talk seriously. LOL.
 

Original Post

 

I had forgotten; a reader reminded me. I posted this as an update back in April:

April 19, 2016: Saudi Aramco picks JPMorgan and banker Klein for IPO. Here's the Bloomberg story:

JPMorgan Chase & Co. and Michael Klein, the former Citigroup Inc. investment banker who runs his own boutique, have been selected to advise on state-owned Saudi Arabian Oil Co.’s initial public offering, according to people familiar with the matter.

Klein is providing strategic advice to the government, while JPMorgan is working on preparations for the IPO and may be among the banks that underwrite the listing, the people said, asking not to be named as the details aren’t public. The deliberations are still at an early stage, and no final decisions about the IPO have been made.

Saudi Arabia’s Prince Mohammed bin Salman is working on a plan to list shares in Aramco, as the business is known, on the country’s domestic stock exchange as early as 2017. A listing could turn the world’s biggest oil exporter into the largest publicly traded firm with a value in the trillions of dollars.

After months of "talking oil down," Goldman Sachs has now turned bullish:

Goldman Sachs said the oil market has moved from a state of oversupply to a deficit, and believes major supply disruptions in markets such as Nigeria, Venezuela and China will sharply lower production levels.

This is very, very interesting. Think about it. When the IPO is finally offered, the bankers will want to ensure maximum participation and maximum return. What better way to do it than to start "talking oil up." 

Think about it. Last Friday when we were shutting down for the week, there was a huge global oil glut. Here it is, Monday morning, less than 72 hours later, and we are already in a "global oil deficit." 

It should be noted that North Dakota crude oil production remained flat month-over-month in the most recent monthly report despite the headwinds.

Remember: when Saudi Arabia said they would not cut back on oil production back in October, 2014, nothing changed with regard to real production in the big scheme of things. Sure, on a raw data / real number basis, production did increase but from a percentage point of view, it amounted to peanuts, and certainly with demand predictions it was not that big a deal. At least that's my world view / my myth. 

So, now as a reader noted, and reminded me (thank you, very much), now that Saudi Arabia is about to finalize their IPO, the bankers are going to "talk up oil." JPMorgan may have the inside track but this could be such a big deal, JPMorgan may need the help of other bankers, like GS. In addition, the Saudi Aramco IPO could certainly spawn (is that the best / right word) other IPOs and other deals.

WTI is up over 3% right now, flirting with $48/bbl. 

The Exxon service station folks outside my window are changing the price of gasoline on their outside signage as I type this. LOL. 

****************************

Bragging On Our Granddaughter

Notes for the Granddaughters

Wow, this is a big, big deal. Our middle granddaughter, age 9, goes to a pretty big school, a pretty competitive school, a fairly "elite" school -- yes, that word, "elite." Sorry.

I've just received word that from her fourth grade class (three school rooms of students in her fourt-grade class) at her school, she was one of five students selected to have her art work shown at the city's convention center. Wow. The list, student's name followed by teacher's name:

• Peyton Mester - Kiehn
• Trenton Bowler - Kiehn 
• Layne Nguyen - Steele
• Olivia Nevin - Steele
• Abbie Ha - Brewton

The reception and award/recognition ceremony will be held this Wednesday. You can expect at least one photograph to be posted! Yeah, pretty proud.

****************************

Bragging On Our Granddaughter

Notes for the Granddaughters

This past weekend our older granddaughter, who plays the flute in her middle school band, attended a band competition in San Antonio/New Braunfels area. The highlight of the trip -- besides the band concert and competition -- was one day at the world famous water park, Schlitterbahn.

Today we got this news from the band director:

We had a fantastic trip to New Braunfels and Schlitterbahn. Our band received all first division ratings and a second place overall rating, missing first to the CTMS Honors band. No one else at that competition could touch CTMS!

We are so proud of all of these guys and girls. It was really a very good performance and I loved seeing them get the reward for their hard work.

Everyone who went is coming home with a souvenir towel from Schlitterbahn. I've seen minimal sunburns and most people came back to school today, so I think the trip was a success!

The "CTMS Honors Band" is the "Cross Timbers Middle School Honors Band" -- her "own" school's honor band. Our older granddaughter has tried out for that honors band and is waiting word on whether she has been accepted.