Saudi Arabia is planning to use its position at the head of the Opec oil cartel to buoy global oil prices before the $25bn stock market debut of its state-owned oil giant.
The Organization of the Petroleum Exporting Countries is due to meet its oil market allies this week to agree the cartel’s oil production policy for 2020.
The world’s largest oil-producing countries are expected to maintain a tight rein on their oil output in an effort to keep global prices from tumbling below $65 a barrel.
As Opec’s de facto leader, Saudi Arabia is expected to use its position to push other members to tighten their compliance with the group’s agreed oil production limits, while cutting its own output even further than it needs to.
The oil-rich kingdom hopes that if it keeps a lid on oil production next year the long-awaited initial public offering (IPO) of Saudi Aramco may fetch a good price when it makes its market debut in the next two weeks.
On Sunday Iraq’s oil minister, Thamer Ghadhban, told reporters in Baghdad that Opec and allies outside the cartel, known as Opec+, would consider deepening their existing oil supply reduction deal by about 400,000 barrels a day to 1.6m.
Aramco is expected to announce the initial price of shares for the world’s most profitable company from Riyadh on the same day that Opec talks take place in Vienna. The listing could value the oil giant at between $1.5tn and $1.7tn, and raise around $25bn for the Saudi state when trading begins later this month.
The ambition of the IPO has been steadily scaled back since 2016 when Crown Prince Mohammed bin Salman announced plans to offer investors the chance to buy up to 5% of the company on Saudi Arabia’s domestic market, the Tadawul, and on a stock exchange in one of the world’s largest financial centres.
Aramco now plans to sell 1.5% of the company, mainly to local investors on the Tadawul, in order to achieve the strongest valuation possible for Saudi Arabia’s economic crown jewel after western banks raised doubts over the oil giant’s steep initial valuation target of $2tn.
Samba Capital, one of the banks involved in the IPO, said on Friday that almost 90% of the bids from institutional investors had come from Saudi Arabia. The “foreign” investors that made up the balance included banks and asset managers from within the Gulf region.
A healthy share price will still depend on strong global oil prices, which threaten to slip next year because of a glut of global oil supply relative to shaky energy demand forecasts.
Chris Midgley, the head of analytics at S&P Global Platts, said Saudi Arabia had been strongly lobbying members of Opec and Opec+ to increase compliance.
He said the efforts had already pushed Iraq and Nigeria to pull back their production slightly in recent weeks, and Saudi Arabia itself might cut production.
The strict stance on oil output may be enough hold prices at $65 a barrel but it is “unlikely that Opec+ will be able or willing to push prices up significantly higher despite Saudi Arabia’s aspirations”, he added.
“Eventually, Russian producers will push to increase their quota,” he said, “which is likely to hold back [oil prices] in the lower $60s during 2020.”