Oil market closer to balance, despite U.S. boom

NEW YORK (Bloomberg) -- The global oil market is moving closer to balance even as increases in U.S. oil production push prices down in the short-term, Saudi Arabian Oil Co. CEO Amin Nasser said.

“This is not a good indication of where the market is likely to be headed going forward, as the large new production capacity and investment we will need in the future are lagging,” Nasser said during an event at Columbia University in New York Friday. “While the short-term market is pointing to a surplus of oil, the supply required in the coming years is falling behind.”

Many indicators are pointing to a more balanced market, Nasser said. The combined inventories of countries in the Organization for Economic Cooperation and Development are flattening and poised to drop, among other signs that the market is tightening, he said.

Saudi Arabia, the Organization of Petroleum Exporting Countries’ biggest producer, is cutting output as it leads efforts to eliminate a global crude glut and bolster prices. The country produced almost 10 MMbpd in March, it reported to OPEC. All the country’s oil was pumped by Saudi Aramco, as the company is known.

Refining focus

Aramco, which has agreed to pay Royal Dutch Shell Plc $2.2 billion to break up a 19-year refining partnership known as Motiva Enterprises LLC, is discussing several refining and marketing joint ventures in Southeast Asia, such as Indonesia, Nasser said. With about 60% to 70% of its exports going to Asia, it’s very much focused on growth in this area, which includes looking for investments within China’s downstream sector. The company is also evaluating opportunities in the U.S. as part of its plan to increase its global refining and marketing capacity to between 8 MMbpd and 10 MMbpd.

“As part of this effort, we will build on our Motiva business in the U.S. once the transaction is completed between Shell and Aramco,” he said.

With the payment to Shell, which includes debt, Aramco’s Saudi Refining unit will take full ownership of the Motiva Enterprises name and legal entity, including the largest refinery in the U.S. at Port Arthur in Texas.

IPO 'on track'

Aramco is planning what may be the world’s largest stock sale. The kingdom is courting foreign investors as it seeks to diversify its economy and gears up for the planned sale of a 5% stake in the company. Deputy Crown Prince Mohammed bin Salman, the king’s influential son, has said the company could be worth more than $2 trillion. The initial public offering will probably take place in the second half of 2018, Nasser previously said.

The IPO is “on track. Everything is going very well,” Nasser said Friday.

Last month, the Saudi government slashed the level of taxation imposed on the company, lowering the rate to 50% from 85% in a bid to boost the valuation. Helped by the lower levy, the company’s oil and natural gas reserves equivalent to 310 Bbbl could make it worth between $1 trillion to $1.5 trillion, based on valuations for other producers, Sanford C. Bernstein & Co. said last month.

A 5% sale of a $2 trillion company would bring in about $100 billion, dwarfing the $25 billion snared by Chinese Internet retailer Alibaba Group Holding Ltd. in the world’s largest IPO in 2014.

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