Oil and the biggest IPO


n an attempt to prop up oil prices, OPEC reduced its oil production by 1.2m bpd starting January this year. Low prices have caused many countries’ whose economies are reliant on crude exports to contract. For some countries such as Venezuela, the damage caused by low prices may prove irreversible. However higher prices resulting from the downscale in production will be welcome news for virtually all oil companies. Combining this with cutbacks in production, a fall in capital investment, marginal producers exiting, fields maturing and capital intensive shale oil production and a weak dollar, and prices are current prices are likely to prevail.

This comes at a time when Saudi Aramco, the biggest (state owned) oil company in the world prepares to list 5% of its shares on two stock exchanges. It is likely the Saudi stock exchange will be one and it is being courted by several other including exchanges in London, New York, and Hong Kong. Even a 5% public offer will make it the biggest in history. This is an interesting move as the government seems keen to diversify the economy beyond oil. It will make for very interesting reading when its reserves (which have never been publicly disclosed) are disclosed for the first time. Whether this is a good or bad investment remains to be seen; it will be difficult for funds to justify why they are putting capital into a commodity that could come under pressure in the decades ahead!

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