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The Saudis’ Oil Secret
Aramco IPO

If you were sitting on a cash cow which gave you a license to print money (generated nearly $400 billion in revenue in 2014), enabled you to influence global leaders, keep your fellow citizens employed, and allowed you to build palaces all over the world, would you sell it off in bits and pieces?

Probably not…

Yet that’s exactly what the Saudis, specifically the Kingdom’s leadership of King Salman and his sons, may end up doing via an initial public offering (IPO).

You see, the Saudis own Aramco, literally the most valuable company on earth. It is the largest producer of crude oil in the world, and ships more oil globally than any company or country. It’s the king of oil.

Bloomberg speculatively reported that Aramco could be valued anywhere from $1 trillion to $10 trillion if it IPOs…

But the timing of this IPO, if rumours of it are true, would be the worst of any major IPO I’ve ever seen. Oil is in the dumps. WTI closed today at a 12-year low of $31.30. No one wants to touch oil with a ten-foot pole. Bearish sentiment is at unprecedented highs (much worse than 2008).

So why would the Saudis want to take it public now? Had they done so in 2014, when oil hovered around $100 per barrel, they would have likely got 3 to 6 times the valuation than in this market.

Unless, of course, the Saudis know something you and I don’t. Perhaps they believe the price of oil is headed lower, and for a long period of time. Maybe they know something about global supply that we don’t… either that or they desperately need to raise money, which I doubt.

Consider that just months after oil retreated below $100 per barrel, in January 2015, Prince Alwaleed bin Talal, a member of the Saudi Royal Family and one of the richest men in the world, publicly stated that “oil prices would never hit $100 again.” Bold prediction considering WTI spent much of 2011, 2012, 2013 and 2014 slightly above or below $100… how could he be so sure?

Could the Saudis know something about the oil market that we don’t? Wouldn’t surprise me. They are the biggest player in the industry. If they take Aramco public, a company they spent years buying back from a group of American companies in the 70s, I deem that a very bearish sign for the long-term outlook on crude oil. Commodity traders will want to keep an eye on this story as it develops.

The world’s richest people don’t typically sell assets in bear markets. They’re usually the ones buying.

Aaron Hoddinott signature



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