Aramco’s post-IPO has been an utter disaster, now down 12% since it soared to 38.5 SAR in mid-December.
On Monday, Aramco shares were trading around the 34 SAR level, close to all-time lows.
Oil is getting hammered to start the week, now at the lowest level in more than three-months, thanks to fears that demand could plunge in China as coronavirus uncontrollably spreads across the country.
Demand woes from Asia are coming at a time when oil markets remain oversupplied as the global economy continues to decelerate.
Aramco shares held the $2 trillion valuation mark of 37.50 SAR for less than four days last month, which is a level that Prince Mohammad Bin Salman (MbS) has justified as the fair value of the state-owned oil company.
MbS, Aramco, and Saudi newspapers have been promoting the oil company’s $2 trillion valuations as the world’s largest IPO. We noted last month that Western banks had avoided participation in the IPO, considering there were significant valuation concerns.
We mentioned how Wall Street banks valued Aramco at around the $1.2 to $1.5 trillion levels, now trading around $1.828 trillion.
With coronavirus spreading across the world, oil markets could remain under pressure for the coming weeks. This could result in a plunge in Aramco shares — if 34 SAR support is broken.
Ole Hansen, head of the commodity strategy at Saxo Bank A/S, said, “a supply glut of fuel in China would filter through to the rest of the world through exports and on that basis the market is reacting in this defensive manner. The Saudis can try to stem the sell-off but while its being driven by the need to mitigate losses that will be difficult to control.”
On Sunday night, Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC was monitoring the coronavirus and how it was affecting Chinese demand. He said current price fluctuations are driven by “extreme pessimism” that is similar to what was seen in the 2003 SARs outbreak, “though it did not cause a significant reduction in oil demand.”
“It is important that we do not exaggerate projections related to future decreases in oil demand due to events in China, and the market does not over-react based on psychological factors, driven by some traders in the market,” the minister said.
Don’t forget the last time a state-owned oil company had an overinflated valuation debuted on the public market — and what happened shortly after was nothing less than devastation. Also, factor in a possible global epidemic that could certainly crash the global economy – it seems Aramco shares and commodities could be in a world of pain in the weeks ahead.