An insight into crude oil’s trend
Since three years ago, we have heard Saudi Arabia’s state enterprise Aramco expressing its interest in public listing for market float.
In 2017, Saudi Aramco officials toured several prominnet stock exchanges in Asia and EuroAmerican region to hunt for the best place to nest its “eggs”.
Through media reports, it is believed the Saudi Aramco is worth around US$1 trillion and the Kingdom plans to list about 10 per cent of this stake for public trading.
However, Crown Prince Mohammed Salman commented in mid-2018 that the state enterprise is worth about US$2 trillion that raised many eyebrows of dubious economists.
Early this year, Saudi Aramco announced the intention of raising US$10 billion through bonds issuance.
No actual details have been released till now.
In April, media once again reports the Saudi Aramco is by far the most profitable company
on earth while reaping US$111 billion gains in 2018.
In the broadest thought of most laymen, why would such a successful national company entice the foreign capital at such a small amount when the annual profits is so huge?
Moreover, would anyone want to share the wealth from the backyard when the oil taps have been running for past 50 years without stopping since?
From the fundamental aspect, the cost of crude oil production estimates at US$70 per barrel with marginal profits involved.
Ironically, the old times of selling crude oil at US$100 or higher per barrel have long gone since August 2014.
Many small scale producers and traders have been wiped out from market when the oil prices dipped beneath US$50 per barrel for about two years from year 2015 to 2017.
Taking a macro inspection across the world, the trend of developing electric cars ( EV) is expanding and have started since 2008 from Tesla and BYD carmakers.
France has committed to gradually convert all automobiles on to road to EVs by the year 2030; while Brazil has cited the same goal by 2040.
The trend of automobiles from hybrid models to full EVs has become a trend of the future that is unstoppable.
What remains behind for the biggest consumption of oil energies will be streamlined to aircrafts and marine vessels.
In March, the International Maritime Organization (IMO) has announced the abandonment of sour Crude (high Sulphur content) for all global cargo vessels starting from January 1, 2020.
The switch to sweet crude (low sulphur content and processed) will increase the price of oil commodity and also escalate the shipping cost.
The current estimation of oil energies consumed by global cargo vessels is somewhat four million barrels per day.
Theoretically, the prices of sweet Crude may rise but the consumption of global usage by cargo vessels will remain unchanged.
On longer term of hindsight, the reliance on gasoline and diesels will reduce over time as more developed countries lead the policy of switching to EVs.
Hence, it is no surprise to expect the demand for Crude will dwindle over to next decade.
While the OPEC leading countries are enjoying the ascension of oil prices from current US$60 per barrel, the eventual target might reach US$70 per barrel in 2020 but still remain dubious when the calendar moves into future years.
Issuing bonds equates to debt instrument that could mean to test the reception market investors.
However, going for a public listing is a diversification of risk factors on global basis for the Saudi’s state enterprise.
The next riddle may probably wriggle in your mind.
How long can crude oil prices elevate before the next collapse? Timing is the parameter that a wise investor must grasp in order to maximise the profits in the portfolio.
In our opinion, you can stay on the track till at least early next year and be observant of US bond yield curve.
The next inverted pattern on US bond yield with the 10 year bond yield rising above three per cent benchmark may be the trigger point of massive global recession.
Nothing is perfect and could act as an almanac.
Take control of the Price Vs Time parameters for your weekly study.
This will become a precious homework for you to forecast the best time to exit your portfolio while acquiring a new strategy to suit the prevailing market situation.