Aramco's $3 trillion float now looks like a pipe dream

  • Aug 13, 2019
  • Sydney Morning Herald

Whether the Saudi’s can float the state-owned group next year or in 2021 at prices that are palatable will depend on the oil market at the time. If the current conditions persist, it might be a difficult sell.

OPEC’s output is at eight-year lows after the "OPEC+' grouping of OPEC members and non-members, including Russia, agreed to extend pre-existing production cuts this month. The Saudis have borne the brunt of those cuts – they are producing about 7 million barrels a day at present, down from more than 11 million barrels a day late last year.

Despite the continuing constraints on production, including the near-total withdrawal of Iranian oil from the market because of the renewed US sanctions and Venezuela’s because of its economic chaos, the oil price has fallen from more than $US74 a barrel in April to $US53.80 a barrel on Monday. Last year it peaked at more than $US85 a barrel.

The dilemma facing the cartel is that the oil price hasn’t responded to the production cuts, not because the US shale producers have significantly ramped up their production (although it is running at record levels) but because demand growth has slowed to its lowest levels since the financial crisis.