Saudi Aramco shares dive, crude down by a third

DUBAI (Reuters) – Saudi Aramco shares fell by as much as 10% on Monday, dropping below their December listing price after Saudi Arabia and Russia said they would raise oil production in a battle for market share, sending crude prices down by a third.

Government bonds from Saudi Arabia and other Gulf oil producing countries were also pummeled after the collapse of the deal between OPEC, Russia

and other oil producers that had propped up oil prices since 2016.

Aramco shares fell below their 32 riyals (NIS 29.92) initial public offering price on Sunday for the first time since trading began in December. The Aramco listing was considered the culmination of Saudi Crown Prince Mohammad bin Salman’s efforts to diversify the Saudi economy. The December IPO valued the company at $1.7 trillion, the world’s biggest share offering.

Since then oil prices and oil companies’ shares have come under pressure, due to fears over the impact of the coronavirus on oil demand and Russia’s refusal to support deeper output cuts to bolster prices. As a result, the Organization of the Petroleum Exporting Countries has removed all limits on its own production.

Aramco shares closed at 28.35 riyals, 11.4% below its IPO price. The shares closed 5.5% lower.

Benchmark Brent crude fell by up to a third on Monday after Saudi Arabia, the world’s lowest cost producer, said it would increase output to gain market share.

“The Saudi reaction to the breakdown (with Russia) was to revert to the 2014 playbook. By precipitating an oil price collapse, they are looking to end their subsidy of higher cost producers,” Akber Khan, head of asset management at Al Rayan Investment, said.

“This is a painful strategy that requires time to play out, and failed on the previous attempt.”

Dubai-based investment bank Arqaam Capital cut its Aramco rating to “hold” on Monday, citing the company’s exposure to the oil price cut and the impact on its 2020 earnings. It also lowered its target price to 30.80 riyals a share from a previous 39.20 riyals.

Saudi stocks also fell by 7.8%, while international bonds issued by Saudi Arabia, Aramco and other Gulf sovereigns also sank.

The cost of insuring against a potential debt default by Saudi Arabia also spiked by nearly 70% on Monday, IHS Markit data showed after oil prices plunged.