Saudi Arabia to bolster budget with Saudi Aramco share sale
The government of Saudi Arabia will sell around 1.5 billion shares of Saudi Aramco, the oil giant, which holds a 90% stake. This is part of the kingdom's long-term plan to become less dependent on oil sales revenues.
Saudi Arabia's wealth is currently largely dependent on Saudi Aramco's activities. However, the ruling Saud family intends to change this. Economic diversification is to be ensured by a program called "Vision 2030," whose foundations were presented seven years ago by Crown Prince Mohammed bin Salman.
In May, the authorities presented forecasts indicating that the country will end 2024 with a deficit exceeding 21 billion pounds. Additionally, the country's direct foreign investment level is significantly below the Saudis' expectations. These issues influenced the decision to sell a package of Saudi Aramco shares.
Saudi Aramco itself has not avoided problems either. The giant recorded a 25% profit decline to 121.3 billion pounds in 2023. The result in 2022 was significantly better, reaching 161.1 billion pounds.
The company explained the profit decline with lower global market prices and reduced sales volume. Refining margins also decreased.
Saudi Arabia is going after billions of pounds
The government intends to sell over 1.5 billion shares of Saudi Aramco, which constitutes less than 0.7% of the Saudis' stake in the oil giant. Reuters calculates that this transaction could boost the state budget by over 13 billion pounds.
The shares will be available for sale on Sunday, June 2. The price range is expected to be between 26.7 and 29 Saudi riyals, equivalent to roughly 7.12-7.73 pounds. Reuters writes that about 10% of the shares will be reserved for retail investors.
- We are not only contributing to strengthening the Kingdom’s financial ecosystem but also the objectives of Vision 2030’s Housing Program - commented Dr Hasan Alhasan, senior policy specialist on Middle East policy at the International Institute for Strategic Studies, in an interview with Reuters. - The kingdom is likely to continue redirecting capital to other sectors, including renewable energy, technology, tourism, logistics and manufacturing, which Riyadh hopes will constitute sources of long-term economic growth, he adds.
Let's recall that the government first sold Saudi Aramco securities in 2019. In the record-breaking public offering, 29.4 billion pounds were raised.
The West has its plans, OPEC+ has theirs
This weekend will bring more important events related to Saudi Arabia and the global oil market. On Saturday, the OPEC oil cartel, which has expanded to include allies, including Russia, will meet. Decisions will be made regarding the supply policy of the 22 oil-producing countries.
The aim of OPEC+ is to maintain current crude prices, while the West would like them to be lower – especially if it's oil from Russia. This is obviously about limiting the funding capabilities for Russia's military aggression against Ukraine.
June marks the end of the period during which OPEC+ countries committed to reducing oil production by 2.2 million barrels per day. Saudi Arabia took on more than half of this burden.
The market broadly predicts that these cuts will be extended until the end of the year. - I expect OPEC+ countries to maintain the cuts for the coming months. In my opinion, this decision will not immediately impact oil prices, as it is rather expected by the market - commented fuel market expert Dawid Czopek in an interview with money.pl on Thursday.
How will oil prices react to the OPEC+ decision?
"Markets will closely watch the results of this week's meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its partners, known as OPEC+. The group is likely to extend its production cuts of 2.2 million barrels per day, aiming to keep prices above 80 pounds per barrel," reads a new forecast by Allianz Trade.
Experts, in the context of Saudi Aramco, add: "Saudi Arabia, which executed the largest cuts, needs oil prices close to 96 pounds per barrel (up from the previous estimate of 80 pounds per barrel) to finance its ambitious transformation plans."
"Oil prices have recently been on a rollercoaster, exceeding 90 pounds per barrel in early April due to rising geopolitical tensions in the Middle East, then recently falling to about 82 pounds per barrel due to concerns about demand and Federal Reserve interest rates," writes Allianz Trade.
What will the situation look like in the coming months? "On the geopolitical front, we do not rule out certain episodes of tension, but we do not foresee events with a long-term impact on oil supply. As a result, Allianz Trade forecasts that oil prices will average 84 pounds per barrel in 2024 and 81 pounds per barrel in 2025" - write economists from Allianz Trade.
