Saudi Aramco Stock 'Plunges'... OPEC+ Discusses '1 Million Barrel' Production Cut

Aramco Stock Price, IPO Undershoot Concerns
OPEC+ to Push for Production Cuts in Vienna on 5-6
Russia May Reverse Stance and Join

[Asia Economy Reporter Naju-seok] Saudi Arabia's state-owned company Aramco's stock price fell during the day to a level below its initial public offering (IPO) price. Although it barely closed above the offering price, concerns have emerged that it could fall below the IPO price due to reduced oil demand caused by the spread of the novel coronavirus (COVID-19). Aramco attracted attention last December with a market capitalization surpassing Apple, but it was helpless against the adverse effect of falling oil prices. This week, oil-producing countries are expected to cut production by 1 million barrels per day.

[Image source=Reuters Yonhap News]

On the 1st (local time), Aramco's stock price closed at 32.65 riyals, down 2.1% from the previous trading day. During the day, Aramco's stock price hit 32.5 riyals, marking the lowest level since its IPO.

The factor holding back Aramco, introduced as the largest IPO in history, is COVID-19. As COVID-19 spread worldwide starting from China and economic activities came to a halt, oil prices have been falling continuously. Because of this, concerns have grown that the stock price could fall below the IPO price of 32 riyals. The direction of Aramco's stock price is expected to depend on whether oil-producing countries decide to cut production.

For now, oil-producing countries are pushing for production cuts to defend against the plummeting oil prices.

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil-producing countries including Russia plan to hold an OPEC+ meeting (a consultative group of 10 major oil-producing countries) in Vienna, Austria on the 5th and 6th to discuss production cuts.

Saudi Arabia and others initially discussed reducing daily crude oil production by 600,000 barrels due to the impact of COVID-19, but as the economic downturn accelerates, the target production cut has now expanded to 1 million barrels.

Accordingly, it is reported that Saudi Arabia is likely to take responsibility for most of the production cuts, with Kuwait, the United Arab Emirates, Russia, and others covering the rest.

In the international market, as oil prices have plunged below $50 per barrel, production cuts are seen as inevitable. The key issue is whether Russia will join the production cuts.

[Image source=Yonhap News]

Russia has so far maintained a negative stance on production cuts, citing supply-side issues such as U.S. sanctions on Venezuela and the civil war in Libya. It has also stated that the impact of COVID-19 needs to be observed. Because of this, the possibility of OPEC cutting production without Russia has been openly raised. However, in that case, it is analyzed that the OPEC+ channel for oil price discussions between OPEC and Russia could effectively end.

However, recently Russia has hinted at the possibility of joining the production cuts, drawing attention to the outcome of OPEC+.

Russian President Vladimir Putin made remarks leaving open the possibility of joining production cuts during a meeting reviewing the global economy and oil market. President Putin said, "Currently, oil prices are at a level that Russia's budget and economy can bear," and added, "This year's macroeconomic policy was based on Brent crude at $42.4 per barrel." This indicates that Russia does not feel a strong need for production cuts.

However, he said, "OPEC+ is an effective means to ensure the long-term stability of the global energy market," and "Even though Russia has the financial capacity to respond to falling oil prices, it does not exclude the need to cooperate with other oil-producing countries." This means Russia could join production cuts considering the positions of other oil-producing countries.

This content was produced with the assistance of AI translation services.