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Big Oil Doubles Down On Shale Despite Price Drop

Despite depressed crude oil prices…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Saudi Arabia Secretly Targeting $80 Oil

Saudi Arabia is likely targeting oil prices at $80 a barrel to boost the valuation of its oil giant Aramco ahead of its much-hyped IPO and to help finance increasingly ambitious domestic policy plans, Bloomberg reported on Tuesday, citing people who have spoken to Saudi officials.

Although Saudi officials have been careful not to point to a specific oil price target in private discussions over the past month, “the inescapable conclusion from the conversations was that Riyadh is aiming for $80,” according to the people who spoke to Bloomberg on the condition of anonymity.

A couple of months ago, Saudi Arabia was reportedly targeting oil at $70, but that was before Riyadh admitted that Aramco’s initial public offering could take place in 2019, instead of in the second half of 2018, as it has been planned for years.

In an interview with Time magazine last week, Saudi Crown Prince Mohammed bin Salman—the proponent of the Saudi economic overhaul to diversify from oil—for the first time linked oil prices with the Aramco IPO.

Asked about the delayed listing, the Crown Prince said:

“We do not delay it. We said we will be ready to IPO around 2018. And we are ready. We did all the laws. We did all the steps that are making us ready to IPO it. Now it’s a matter of choosing the right time. So 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. But we are ready to IPO it now if the time is right.” Related: Russia Wants To Drop Dollar For Oil Payments

Saudi Energy Minister Khalid al-Falih has also recently signaled that the Kingdom would rather overtighten the market instead of leaving the job of erasing the glut undone.

In February al-Falih said that “If we have to err on over-balancing the market a little bit, so be it.”

According to Bloomberg’s sources, however, the Saudi ambitions for oil at $80 is not shared by all OPEC members, because some of them are worried—privately—that the Saudis are targeting too high an oil price that could further boost U.S. shale production.

By Tsvetana Paraskova for Oilprice.com

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  • Neil Dusseault on April 10 2018 said:
    Wow...just wow.

    Please do not include the word "secretly" if this is in the title of the headline article posted on Oilprice.com...let's be honest, this news was rather deliberate.

    Every time this jawboning occurs, I'm going to remind everyone that in early 2016 the Kingdom said that they can produce oil at $10/bbl (a price no other producer can match). Just the other day on this site I commented the same thing on an article which stated the Kingdom is on the verge of economic collapse, and that was over the weekend. Now, just two days into the week, WTI is over $3/bbl higher despite record production in the U.S. and soaring rig count data.

    But I am curious: Who is going to do the bidding for the Saudis? Hedge fund managers? Who is going to pay the extra money it is going to cost to fill up everyone's gas tank? Who will pay the additional fee for fuel cost increases when booking a flight? Are those that are profiting feeling generous enough to cover this tab? Why is it we pretend to have a market which essentially is only allowed to ever go up and is never based on the laws of supply vs. demand? (e.g., Case-in-point: Today oil is up on news of China easing on tariffs, yesterday WTI was up as headlines stated "oil prices rise with the U.S. stock markets.")

    Last, the best question of all: Does this ever work the other way around? Why is there such a common term as "short covering" but yet no one knows what its antonym "long unwinding" is because it never is allowed to happen!
  • Mamdouh G Salameh on April 10 2018 said:
    Saudi Arabia and other OPEC members need a price higher than $100 a barrel to balance their budgets. Moreover, for Saudi Arabia and other OPEC members whose economies depend almost totally on the oil revenues, maximizing their revenues is a sensible economic principle provided this does not impact adversely on the global economy.

    So there is no surprise if Saudi Arabia targets an $80 oil price. This has nothing to do with the IPO of Saudi Aramco. I am on record saying regularly for the last four months that Saudi Arabia will eventually withdraw the IPO altogether.

    My opinion is based on the following factors: first, listing Saudi Aramco on the Saudi stock market, Tadawul, will overwhelm it creating liquidity concerns; second, Saudi Arabia is no longer financially in need of the IPO, and third, there is a huge risk of American litigation if the IPO was listed in New York, or London or Hong Kong.

    The recent rise in oil prices is already starting to repair the damage inflicted on the Saudi economy by the oil price crash in 2014. So financially, Saudi Arabia has no need for the IPO. In fact, S&P Global Ratings raised on Friday Saudi Arabia's credit rating to a stable outlook on the expectation that economic growth will accelerate in 2018 as it continues to boost spending.

    During 2017, the ultimate objective of Saudi Arabia and other OPEC members was to establish a price floor of $60 rising to $70 in 2018 and $80 by 2020. As for a price ceiling, their objective is a minimum of $75 in 2018 rising to $85 in 2019 and $100 or higher in 2020.

    As for US shale oil production, it will continue irrespective of how high or how low oil prices might reach. The shale drillers find themselves in a vicious circle. They need to continue production even at loss just to get loans to keep them afloat and without production they can’t pay outstanding debts which have been on the rise far above the $200 bn extended to them a few years ago. They work on the principle of “robbing Peter to pay Paul”.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • jack ma on April 10 2018 said:
    Great article, but it's not a secret any more because you just told the world. Oil just passed 70. 80 - 70 = 10 so that means we are getting close. I made it to 6th grade and I can do my gozzintas. 4 gozzinta 8 twice, 3 gozzinta 9 three times, 8 gozzinta 16 twice. So ten is not far to get to 80. What about 150 though on 400 million barrels of paper oil that drove prices to 27. The dollar war rages on AND THERE IS A MASSIVE OIL SHORTAGE AROUND THE BEND. IMHO
  • John Brown on April 10 2018 said:
    How corrupt is this? The entire world oil market is dancing to the tune of Saudi Arabia's desire to achieve a price to get the valuation they want on ARAMCO. Of course if Saudi Arabia is willing to idle enough production to push prices there they probably can do that for awhile. It will be great for both the U.S. shale oil and offshore oil growth. It also shows how corrupt the world oil market is and why the world needs to continue to diversify the energy mix. Oil and gas are no longer scarce resources, and we need to continue to grow renewables until nobody can play these games with the worlds energy supply, and price.
  • the masked avenger on April 10 2018 said:
    High oil, dead economy. No news here.
  • CorvetteKid on April 12 2018 said:
    A temporary rise in oil prices is NOT going to influence the valuation of ARAMCO. The 2008 spike in oil prices to $140 didn't raise oil valuations equal to the oil rise; an increase in WTI or Brent from $70-$80 won't, either.

    A non-democratic government with a NOC monopoly with unclear private property and minority investor rights is not going to get a full valuation commensurate with oil reserves, cash flows, etc. And access to those reserves and cash flow numbers are questionable, too.

    As for a Saudi-only IPO listing, please. If they don't have a New York or London listing, they should just cancel it.

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