If you’re wondering why the Saudi Aramco IPO machine is clanking back into action even as oil prices are idling below $60 a barrel, maybe it has something to do with this:
Getting to a $2 trillion valuation for Saudi Arabian Oil Co., as Prince Mohammed bin Salman has targeted, didn’t look realistic when oil was trading north of $70 a barrel and looks even less so now. So unless Aramco’s new bankers have a way of averting what could be a dreadful 2020 for the oil market, the rationale for the IPO may be shifting from the high-flown language of economic reinvention to the more mundane imperative of getting money in the door.
Saudi Arabia isn’t alone, of course, and is far from having the worst numbers in the Energy Information Administration’s latest roundup of OPEC oil-export earnings, out Tuesday. Apart from Venezuela, where oil production continued spiraling down, every member enjoyed an increase in per capita revenue last year. But at roughly $1,400 a head in real terms, the group average is half the level it was in 2008, the year oil prices hit their all-time peak. And the EIA forecasts a drop this year and next.
Looking at data going back to 2000, most members saw peak per-capita revenue in one of two years: 2008, when oil prices peaked, or 2011, when oil spiked again because of the Arab Spring (Iraq is the sole exception, peaking in 2012). In other words, this group enjoyed its greatest windfall so far this century when China was industrializing rapidly and before the investment wave in the oil sector, including shale, smothered fears of supply shortages because of Middle Eastern tensions.
It is telling that the EIA’s estimate for average per-capita export revenue in 2020 is just $1,065 (in real terms). Apart from the trough of 2016, that would be the lowest figure since 2003 — not much to show for three years of supply cuts by OPEC and its newfound partners. OPEC’s world has changed beyond recognition, and many of its members are in the unfortunate position of lacking the resources to cope with that. That is the single biggest risk hanging over the global oil market. It is also a compelling reason to set aside previous expectations and just raise some money.
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Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.
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