The kingdom of Saudi Arabia is working to boost oil prices to around $80/barrel to pay for the government’s policy agenda and boost interest in the Saudi Aramco IPO.
Saudi Aramco IPO likely in 2019
According to a report by Bloomberg, the kingdom of Saudi Arabia is hoping oil prices will rise to $80/barrel to help pay for government services as well as attract investors to the upcoming Saudi Aramco IPO.
Speaking with Time magazine last week, Saudi Arabia’s Crown Prince Mohammed bin Salman made his first public statement where he linked his expectation of rising oil prices to the timing of the Aramco IPO.
“We believe oil prices will get higher in this year and also get higher in 2019, so we are trying to pick the right time,” he told Time regarding the IPO.
Initially, the Saudis had hoped to bring the listing to market in the second half of 2018, but are now aiming for 2019.
As well, the Saudis are now publicly hawkish about oil prices and are suggesting that the OPEC supply cut agreement should continue even if the cartel meets its goals of rebalancing the global crude market.
Saudi Arabia’s Oil Minister Khalid al-Falih said in an interview last month that even at $70/barrel, oil prices have not been high enough to stimulate investment in the oil industry. Falih says investment remains significantly below levels seen before the 2014 oil price crash.
“That tells me that the pricing signals that have come out of the recovery haven’t been sufficient,” he said.
Rising oil prices will help the kingdom meet its domestic policy needs. Rising oil prices have helped narrow Saudi Arabia’s budget deficit, but Prince Mohammed has undertaken additional expensive and ambitious economic and social reform.
As well, the kingdom’s military is mired in an entanglement in Yemen.
According to Bloomberg, the Saudis are not inclined to deepen their supply cuts to achieve the desired $80/barrel, they are likely to continue with the current measures until the price goal is reached.
Unrest in Venezuela is cutting down the global glut of crude and possible new US sanctions in Iran along with rising demand for crude are expected to absorb increasing US shale production.
Some analysts are concerned the Saudi-led OPEC supply cut agreement will only further boost US production which has topped 10 million barrels per day. As well, some participants in the OPEC deal are privately admitting they are concerned that the Saudis are trying to increase oil prices too much, according to Bloomberg.
The Saudis have managed to keep Russia on their side concerning the OPEC supply cut agreement. Recently, Russia’s Energy Minister Alexander Novak said the alliance between the cartel and non-cartel countries, including Russia, could last indefinitely.
By 2:33 p.m., EDT, on Tuesday, Brent oil prices rose by 3.69 per cent to $71.18/barrel.