Saudi Aramco’s IPO can wreak havoc in oil markets

The public listing of Saudi Arabia’s state-owned oil company, Aramco, could be terrible news for the oil industry in the long term, squeezing out smaller producers and causing big issues with imbalances in the market.

Research firm Bernstein argues in a new note that Saudi Aramco’s initial public offering — which is said to occur in 2018 and would make the state oil giant the world’s most valuable publically listed company — could have a huge impact on the markets.

Bernstein's basic argument is that once the company is publically listed and accountable to shareholders it will increase its efficiency and boost production above current levels, in turn hitting smaller oil-producing nations and causing price volatility to shoot up. Here are the crucial quotes from Neil Beveridge, Oswald Clint, and Tracy Pun: Longer term, however, a (partially) privatised Aramco would likely become more efficient and likely to want to increase capacity and production over current levels, assuming that the resource base can support this. This has negative implications for oil markets given the modest levels of capacity additions which are currently expected from Saudi over 5 years. How spare capacity will be managed under a privatised Aramco is also unclear.