Oil-related Developments - September 2018

1. Oil prices: On 3 September, oil prices rose due to concerns that falling Iranian output will tighten markets once US sanctions take effect from November, but gains were limited by higher supply from OPEC and the United States. Brent crude oil was up 37 cents at $78.01 a barrel, while WTI was 30 cents higher at $70.10.

Analysts believe that US sanctions are already curbing exports from Iran. A commentator has noted: “Exports from OPEC’s third-biggest producer [Iran] are falling faster than expected and worse is to come ahead of a looming second wave of U.S. sanctions. Fears of an impending supply crunch are gaining traction.” Another analyst has noted that “Iranian production is already showing signs of decline, falling by 150,000 bpd last month [August] ... (as) importers of Iranian barrels will already be moving away from taking shipments.”

As of now, markets seem to be well-supplied: production by the OPEC countries rose 220,000 barrels per day (bpd) in August to a 2018 high of 32.79 million bpd. Output was boosted by a recovery in Libyan production and as Iraq’s southern exports hit a record high. US drillers added oil rigs for the first time in three weeks, increasing the rig count by 2 to 862. The high rig count has helped lift U.S. crude production by more than 30 percent since mid-2016 to 11 million bpd. Again, to offset shortfalls due to the impending sanctions on Iranian oil, the US could provide oil from its strategic reserve.

While the Omani oil and gas minister has predicted that oil prices could cross over to above $ 80 next year, an American analyst has forecast that, once the Iran oil sanctions take effect, "you're looking at a WTI price and Brent in the $85 to $95 range, potentially."

2. ARAMCO IPO postponed: On 22 August, Reuters reported that Saudi Arabia had decided to postpone the IPO offering of 5 percent of ARAMCO shares in international markets. The planned listing was to be the cornerstone of the kingdom’s promised economic overhaul and, at a targeted $100 billion, the biggest IPO ever. It was the brainchild of Crown Prince Mohammed bin Salman. Reuters, quoting government sources, reported on 27 August that King Salman had stepped in to shelve the proposal.

The decision came after the King met with family members, bankers, and senior oil executives, including a former Aramco CEO. The king’s interlocutors told him that the IPO, far from helping the kingdom, would undermine it. Their main concern was that an IPO would bring full public disclosure of Aramco’s financial details. In late June, the king sent a message to his diwan (administrative office) directing that the IPO be called off.

It is not clear exactly which of the IPO arguments prompted King Salman to make the decisive call on Aramco. Industry experts and sources have told Reuters that preparations had been slowing for months for at least two reasons: scepticism about crown prince’s public declaration in 2016 that the sale would give the whole company a value of $2 trillion valuation, and concern about the legal risks and tough disclosure requirements associated with a foreign listing.

After Reuters reported last week that the deal had been shelved, Energy Minister Khalid al-Falih said the government was committed to conducting the IPO at an unspecified date in the future. A senior Saudi official referred Reuters to that statement and repeated that the government, Aramco’s shareholder, was working toward an IPO when conditions were right.


September 4, 2018

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About the Author

Ambassador Talmiz Ahmed

Former Ambassador of India to Saudia Arabia, Oman and UAE, monitors developments in the West Asian region.  

Ambassador Talmiz Ahmad joined the Indian Foreign Service in 1974. Early in his career, he was posted in a number of West Asian countries such as Kuwait, Iraq and Yemen and later, between 1987 and 1990, he was Consul General in Jeddah. He also held positions in the Indian missions in New York, London and Pretoria. He served as Indian Ambassador to Saudi Arabia (2000-03; 2010-11); Oman (2003-04), and the UAE (2007-10). He was also Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06. In July 2011, the Saudi Government conferred on him the King Abdul Aziz Medal First Class for his contribution to the promotion of Indo – Saudi relations. After retirement from the Foreign Service in 2011, he worked in the corporate sector in Dubai for three years. He is now a full-time academic and holds the Ram Sathe Chair for International Studies, Symbiosis International University. He has published three books: Reform in the Arab World: External Influences and Regional Debates (2005), Children of Abraham at War: the Clash of Messianic Militarisms (2010), and The Islamist Challenge in West Asia: Doctrinal and Political Competitions after the Arab Spring (2013). He writes and lectures frequently on Political Islam, the politics and economics of West Asia and the Indian Ocean and energy security issues.