Saudi Aramco should have benefited from the supply concerns that have lifted its peers, but its exposed geographical location could mean risks for investors outweigh the gains.
Crude oil prices rallied after Iran’s missile attack on the U.S. bases in Iraq on Tuesday night, prompting major oil companies to rise. Royal Dutch Shell gained 2.4% in the first week of the year, BP was up 5.7%, and Exxon Mobil grew 0.7%.
Saudi Aramco, on the other hand, slid 2.5% since the beginning of the year and more than 10% since its IPO on concerns over the escalation of tension in the Middle East. The markets keep in mind the September attack on Aramco oil facilities, which instantly knocked out 5% of the world’s oil production.
The Saudi state company boasts the lowest cost of production in the world ($2.8 per barrel of oil equivalent in 2018), but it will benefit very little from the current oil price surge.
A rise in oil prices would provide Aramco with some support, creating “a greater certainty over the dividend,” Russ Mould, AJ Bell investment director, told Barron’s.
“You would argue in that respect that it would help, depending, of course, on why the oil price is going up. If it is because of further geopolitical tension in the Middle East, that might not help so much. If it was more because demand was rocketing or there was a supply problem in America, then that would be hugely beneficial. So it depends on why oil is going up.”
Looking Ahead. The investors have been wary of Saudi Aramco assets’ exposure in the Middle East even before the latest U.S.-Iran tension. The assassination of Iran’s General Soleimani and Iran’s subsequent missile attacks on American bases in Iraq just boosted those fears. Oil companies with assets outside of the Middle East look much safer right now.
https://www.barrons.com/articles/shell-bp-and-exxon-mobil-surged-on-iran-tension-but-why-is-saudi-aramco-down-51578485223
2020-01-08 12:07:00Z
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