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ING: Saudi Aramco's IPO erodes OPEC

World's largest oil company may defend shareholder interest with over-production.

By Daniel J. Graeber
ING: Saudi Aramco's IPO erodes OPEC
Saudi Aramco public offering in 2018 is likely to erode the influence of OPEC, a medium-term market report from ING finds. Photo by Oskari Porkka/Shutterstock

AMSTERDAM, Netherlands, June 30 (UPI) -- The initial public offering of Saudi Aramco is likely to push the global market for crude oil toward the supply side and erode OPEC's influence, analysis finds.

An economic agenda, dubbed Vision 2030, aims to boost Saudi Arabia's non-oil revenue and relies in part on raising money through the public listing of shares in the Saudi Arabian Oil Co., known also as Saudi Aramco. Billed as the largest-ever IPO, the 2018 offering would likely value the company at $2 trillion.

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"The immediate impact of an IPO should be higher production but, more importantly, the offering is a bellwether for Saudi Arabia's push away from a heavy dependence on oil," a medium-term market forecast from ING Bank read.

Oversupply, in part fueled by U.S. shale oil, helped push oil from above $100 per barrel in 2014 to below $30 in early 2016. That, in turn, eroded the revenue streams for countries like Saudi Arabia that depend on oil exports.

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Over the next five years, Moody's Investors Service said it expects the Saudi economy will grow at an average rate of 2 percent, compared with the 5 percent growth rate in the four years ending in 2015.

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With the IPO in mind, ING said it expects private sector contribution toward gross domestic production to increase 15 percent to 65 percent by 2030. Once the IPO is triggered, Saudi Aramco will have to act in the best interest of its shareholders. That will make it difficult for the company to put a governor on oil production, with ING predicting a 15 percent increase to 11.5 million barrels per day.

According to ING's analysis, this could raise serious questions about the future of the Organization of Petroleum Exporting Countries.

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"If Aramco moves further away from OPEC policy, this will make the cartel a weaker force, which could see other member countries also more reluctant to hold back capacity," it said. "Maybe a more extreme view, but there is the potential that the Aramco IPO leads to the eventual break up of OPEC."

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