Energy
Shell Aramco Split Means No Oil Production Cut, Rising US Stocks
Published:
Last Updated:
Since July, oil and stocks have traded in tandem. Heavy selling days in stocks that began at the start of 2016 came together with plunges in the oil market. Relief rallies were mainly relegated to days when oil rallied. Given the U.S. credit supply is still expanding rapidly, now even with some initial signs of consumer price inflation as core CPI beat market expectations again, a probable reason that oil and stocks were in lockstep is that sovereign wealth funds originating from oil-producing countries were being liquidated on falling oil in order to raise dollars.
Now, with Royal Dutch Shell PLC (NYSE: RDS-A) and Saudi Arabia’s state-owned Aramco splitting up their 18-year refinery joint venture, two things seem likely. First, the Saudis will not slow oil production, no matter how many meetings are called, and two, the selling pressure on stocks coming from sovereign wealth funds appears to be over. Here’s why.
First, the evidence that sovereign wealth liquidation is at least partly responsible for the recent lull equities is in the foreign exchange data released by the Saudi Arabian Monetary Agency, among others. Saudi foreign exchange reserves  have plunged 20% since August 2014, by about $144 billion. It’s similar with other oil exporters. The split with Shell is coming at a time when Shell needs the cash to keep paying its dividend, so Aramco believes it is getting a good deal now. It is signifying that the Saudis are interested in gathering up their assets and going public with Aramco, long speculated to be an end goal.
24/7 Wall St.Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
