Reason #56 Why I Love To Blog -- March 12, 2018

I have said that I doubt we will ever see a Saudi Aramco IPO. I haven't been able to find (m)any folks in the public arena that agree with me. The IPO launch has already been delayed. It turns out there is an "international oil economist" that argues the same -- that we will  never see a Saudi Aramco IP. From a comment to an oilprice.com article today:

Saudi Arabia’s oil price of $70 is only a starting point. They need a minimum price of $70 or even higher for a successful IPO of Saudi Aramco though I have been the only oil expert in the world suggesting for quite a while that Saudi Arabia is going to withdraw the IPO altogether.

There are three obstacles that make a listing on the NYSE unlikely:

• SEC rules and regulations that Saudi Arabia cannot live with
• the kingdom would have "to open their books" to the public, something a super-secret government would never be able to do
• the kingdom won't get the valuation they want (need) -- $2 trillion for 5% of their assets

Dr Salameh also notes that it doesn't matter how "cheaply" Saudi can lift oil out of the ground, their budget requires significantly more than $70/bbl. For Saudi Arabia, the price of oil is an existential issue.

Whether or not the OPEC-Russia production cut deal falls apart this summer is anybody's guess. But Saudi Arabia already made that mistake once -- the $1 trillion mistake -- from which they are years if not decades away from recovering -- see graphic below.

It's hard for me to believe that Saudi will support any action that drives the price of oil toward $40 again.