Saudi stocks needed an assist from government funds to avoid steep losses on Sunday following one of the most brazen attacks on the country’s oil infrastructure in history.
The drone strikes on Abqaiq and Khurais affected 50% of the kingdom’s output, a stark reality check ahead of Aramco’s IPO.
Shares plunged more than 3% out of the gate, but quickly pared losses on suspected buying from government funds. With foreign participation out of the game on Sunday, state buying could have been particularly effective. Reversals in the first hour and a half of trading are indicative of government support.
Still, the Tadawul All Share has given up its gains for the year (top pane).
“The stock market has been affected, especially the petchem sector [where] the efficiency of some major companies will be about 50% in the coming 10 days”, Mazen al-Sudairi, head of research at Al Rajhi Capital, said.
Sabic, which Reuters notes “curtailed feedback supplies by about 49% following the attacks”, fell as much as 5% before trimming losses.
The attacks aren’t likely to derail the Aramco IPO, but could affect the valuation. As noted here on Saturday, the attacks underscore the inherent precarity of the company’s infrastructure given its proximity to conflict. “[The] Crown Prince will push the company to demonstrate that it can effectively tackle terrorism or war challenges”, Eurasia Group said, in a note.
Prince Mohammed was already having trouble justifying the lofty valuation he wants in the listing. This presumably makes it harder although, ironically, it will probably drive up the price of crude, a boon to that same valuation.
“The latest attack on Aramco facilities will have only a limited impact on interest in Aramco shares as the first stage of the IPO will be local”, Eurasia Group went on to remark, before cautioning that “the international component of the sale would be more sensitive to geopolitical risks”.
Read more:
It’s Official: 5.7 Million Barrels Of Saudi Oil Production Shut After Aramco Drone Attacks
For what its worth, I’ve been holding UTX LMT NOC positions for increased military tensions, in particular missile defense. Also have been stubbornly hanging on to oil stocks, which have stunk but could have their day – but preferring majors to small E&P.