Well, yes, but

Tricky one here:

The world’s biggest float – the $2 trillion listing of state-owned oil titan Saudi Aramco – is under threat in the wake of attacks on the desert kingdom that triggered the biggest spike in oil prices for almost three decades.

The weekend drone strikes on Aramco’s vast Abqaiq refinery and the Khurais oil field – Saudi Arabia’s second-largest – sent shockwaves through markets.

Brent crude soared as much as 20pc on Monday, hitting a high of almost $72 a barrel in the biggest one-day rise since the first Gulf War in 1991, before retreating to just under $69.

A higher oil price increases the value of someone that owns oil reserves. But the value is decreased by people trying to blow up the processing plant. And so which is the more important influence here?

Not that I think the float will get away at anything like the asking price. The company’s just never going to be independent enough from the local government for it to be transparent.

4 comments on “Well, yes, but

  1. One aspect is that mid east oil producers had spent heavily on their own domestic refining capacity and due to that were out competing the old ones in Europe and US. This event might tip it a little to the 100 year old ones staying around a bit longer. Assuming they’re more secure, which come to think of it is, admittedly, a big if.
    Like Tim’s blast furnace example no-one’s going to build a new refinery in Western Europe, they have to bodge any new kit on, faced with a modern refinery as a competitor the investment becomes marginal. But they also have to factor in that a shiny new plant in the mid east is more volatile (liderally geddit!?)

  2. The answer is almost certainly that the value of Aramco is decreased.

    Technically, it depends on the share of Saudi production in the global total, versus the price elasticities of oil demand and non-Saudi supply (all suitably discounted back to the present).

    As the Saudi production share is almost certainly less than the sum of the two elasticities (except in the very short run), the price increase will not be enough to offset the loss of production for Aramco. .

  3. Why do it? Get cash instead of sell bonds. So what.
    In future KSL can simply ramp royalty to squeeze dividend if they like.
    Steer clear.

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