New questions loom around the Saudis

By Don Briggs

It appears that the fox is now in the hen house in Saudi Arabia. Or is he? Many questions are circulating as to the changes that are taking place with the new oil minister of Saudi Arabia.

The recently ousted minister was in place for the last 20 years.

It seems as though he had some interest in leveling out production that would in turn cause oil prices to return to a profitable rate for the rest of the world. He is gone.

A new sheriff is in town.

The newly appointed oil minister, Khalid al-Falih, is also the chairman of the state run oil company – Saudi Aramco. This brings about a whole new conversation. It would first seem like it would behoove him best to keep production at a high rate to benefit Aramco.

However, other statements, opinions and theories point to a reduction in production that would benefit the Saudis even more so.

Recent statements made by Prince Mohammad bin Salman, Saudi Arabia’s deputy crown prince and de facto ruler, center on the conversation of taking Saudi Aramco to the stock exchange. The prince has estimated that the company is worth somewhere north of $2 trillion.

Taking Aramco public sounds fine and good for the world economy and the price of oil until you dig into the details a step further. This public offering would make Aramco the largest publicly traded company by up to 20 times greater than an Exxon or Shell.

As a side note, Saudi Aramco recently acquired Shell’s Motiva refinery, which is the largest refinery in the United States.

This public offering throws yet another question into the equation. Saudi Aramco has been the largest producer of the Organization of Petroleum Exporting Countries (OPEC) for several decades now. OPEC dictates world crude oil prices. OPEC is who decided to not cut production and in turn crush U.S. shale development over the last 18 months.

So is it legal to take Aramco public to the London or New York stock exchange, and yet, still be the driver of conversations that dictate global crude oil prices?

Let us restate this question very clearly: can a publicly traded company be apart of the OPEC cartel that controls crude oil prices?

When a company is offered up on the stock exchange, they are now subject to many transparency laws and public scrutiny. Will Aramco be subject to these laws and yet still be in the OPEC conversations?

This leads to the final question. How does this affect the United States oil and natural gas market?

With the beforehand knowledge that Saudi Aramco was the driver of the conversation for stifling U.S. shale development, will other unnamed companies jump in on the investment opportunity with Aramco?

If so, will the new leader of Saudi Aramco cut production to allow the price of oil to go back up?

This in turn would make a small fortune for the investors of this 5 percent made available to the public. If the Saudis cut production, would this cause the price of oil to go back up as quickly as it dropped?

How then would the U.S. market recover? How would U.S. investors treat this investment opportunity?

It is safe to say there are many unanswered questions surrounding the Saudi’s decisions as well as the entire global oil market. What we can say for certain is that nothing will ever stay the same.

What has gone down so drastically over the last two years could jump back up  – all surrounding one transaction of a publicly traded company? We shall see.


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