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Are Crude Oil Prices Rising with Aramco’s IPO?

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On Monday, WTI crude oil prices fell 1.2% and closed at $57.02 per barrel. The United States Oil Fund LP (USO) fell 1.5% on the same day. On a month-to-date basis, WTI crude oil active futures have risen 5.3%. Aramco held a press statement on November 17. According to a CNBC report on the same day, Aramco plans to offer around 3 billion stocks or 1.5% of the total stake in the IPO

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Oil and Aramco’s valuation

The movement in crude oil prices would impact Aramco’s valuation. A sudden fall in oil prices might drag the company’s valuation. Aramco’s valuation could be around $1.7 trillion. A 1.5% stake sale might fetch around $25.5 billion for Saudi Arabia. The amount will help Saudi Arabia’s government narrow the fiscal deficits.

In a report released in September, the IMF projected Saudi Arabia’s fiscal deficit at 6.5% of the GDP in 2019. A year ago, the figure was at 5.9% of the GDP. The report highlighted that lower oil prices play an important role in increasing Saudi Arabia’s fiscal deficits. If oil prices fall in the medium term, the fiscal deficits figure will expand more.

Oil rig count and crude oil price

Last week, the oil rig count fell to 674—the lowest since April 2017. The lower oil rig count might support oil’s rise. Any deceleration in US oil production growth is a positive development for oil prices. Lower oil prices have forced US shale oil producers to cut capital expenditure and focus on increasing shareholders’ returns. 

In the week ending November 8, US crude oil production rose to 12.8 MMbpd (million barrels per day)—an all-time high. Rising US oil production is an important factor behind the decline in US crude oil prices in the last few years. Read Where’s US Crude Oil Production Heading? to learn more.

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EIA’s Drilling Productivity Report 

On November 18, the EIA released the Drilling Productivity Report. Based on the report, oil production from the major seven shale regions is expected at 9.133 MMbpd in December—growth of 0.5% on a month-over-month basis. In October and November, the figure was 0.8% and 0.7%. In December 2018, on a month-over-month basis, production from major shale regions grew 1.7%. The figure might indicate a slowdown in the US oil production growth rate.

However, the report highlighted that “new-well oil production per rig” from the major shale regions could rise by 10 barrels per day in December on a monthly basis. The data is based on the “rig-weighted average.” Rising rig efficiency is another important reason for record production despite the oil rig count at a multiyear low.

Oil prices and inventory data

This afternoon, the API will report the inventory data for the week ending November 15. A Reuters poll suggested that the API might report a rise of 1 MMbbls (million barrels) and 0.7 MMbbls in crude oil and gasoline inventories, respectively. On Wednesday, the EIA will report the crude oil inventory figure. Any unexpected build-up in inventories in the API or EIA report could drag crude oil prices.

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