Saudi Aramco successfully sold $11.2 billion worth of shares in the company this week, giving the government some much-needed cash and broadening its investor base to include more European shareholders.
But recent dynamics in the oil market also showed how the company—and the country—has to please very different audiences at the same time.
Saudi Arabia’s role as the most powerful member of OPEC may conflict with its role as a maximizer of shareholder value. That dual role may be one reason the Aramco offering was priced at 27.25 Saudi riyals, the lower end of the expected price range of 26.7 riyals to 29 riyals.
The Saudi government owns the vast majority of Aramco shares.
OPEC is currently struggling to take back control of the oil market from companies outside the alliance—including in the U.S.—that have been ramping up oil production.
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Last weekend, OPEC and its allies, known as OPEC+, agreed to hold 3.6 million barrels off of the market through 2025. But several members of the group, including Saudi Arabia, said they planned to start bringing back some production this October, eventually adding back 2.2 million barrels over the coming year. Saudi Arabia would account for the largest share of that added production.
For investors in Aramco, officially known as Saudi Arabian Oil Co., production growth is good news. Some of the cash flow from each additional barrel of oil the company produces should accrue to shareholders, who already are getting a nice-sized dividend. The stock’s dividend yield today is 6.6%, versus 3.4% for
But for OPEC, the announcement about the 2.2 million additional barrels had a negative outcome. The news landed with a bearish thud on the market, causing international oil prices to fall 3.4% on Monday to $78.36 per barrel, the lowest price since February.
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Oil prices recovered some of those losses after OPEC members reinforced they would not add oil back to the market if prices and demand were weak.
Saudi Arabian oil production may not, in fact, be going up. Aramco will have trouble producing more oil if Saudi Arabia also needs to make sure that OPEC sticks together on production cuts and doesn’t scare the market.
Write to Avi Salzman at avi.salzman@barrons.com
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Read More: Saudi Aramco Has 2 Oil Market Roles That May Conflict
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