Commodity price, Economics, Energy crisis, Hedging, Market research, Oil market, trading

Saudis to unveil the big secret? Not likely.

Over at OilPrice.com Nick Cunningham wrote that Saudi Arabia might finally reveal one of its closest kept secrets as they prepare to sell some 5% of its oil monopoly, Saudi Aramco, to the public. The Saudis and their Wall Street bankers expect Aramco to be valued at $2 to $3 trillion, which would generate north of $100 billion for the Saudis and massive underwriting fees for Wall Street Banks.

Since both the Saudis and Wall Street hope for the highest possible valuation for Aramco, we should not expect that they’ll “unveil” anything less than the rosiest plausible figure for their oil reserves.

SaudiReserves_PerceptionVReality

Saudis have long been entirely secretive about their oil reserves which have magically remained at about 260 billion barrels since the early 1980s even though the kingdom extracts some 3 billion barrels each year.

As I’d written previously, the last independent audit of their oil reserves showed that Saudi Arabia had 110 billion barrels of proven oil reserves, another 67 billion barrels of probable reserves and 69 billion barrels of possible reserves. That was in 1979 and since that audit, the kingdom has extracted around 106 billion barrels, very nearly all of their 1979 proven reserves.

Various information sources including diplomatic cables released by wikileaks (see Making sense of Saudi Arabia’s oil reserves) confirmed that the reserves situation in the kingdom – to put it politely – is far from rosy, but investors are unlikely to learn the truth from the Aramco’s IPO cheerleading squad.

Alex Krainer is an author and hedge fund manager based in Monaco. Recently he has published the book “Mastering Uncertainty in Commodities Trading“.

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