Yes, it’s a bold headline, and we should disclose ahead of time that we’ve been atrociously wrong on previous predictions (ie/ Trump and Amazon*). You might be wondering what makes this prediction different. The answer: not much. This is purely speculative on our behalf so don’t rely on any of this for investment, financial or real estate advice.
We’re making our prediction that oil will cross over $70 / barrel (WTI:USD) solely on the basis that Saudi Arabia is expected to take Saudi Aramco (the state-owned energy giant) public via an Initial Public Offering. Let’s put this into context. One of the largest companies in the world is owned exclusively by a single country. That company (and country by extension) is looking to raise money. The underlying value of that company is oil, a commodity that the country (and now company by extension) is influenced by their heavy influence on OPEC. If we haven’t lost you, here’s a simple overview: One of the largest companies in the world is about to raise money based on the underlying price of a product they directly influence. If the success of the IPO is dependent on the price of oil, logically, Aramco would want higher oil prices. So why do we think Saudi Arabia will push prices over $70 / barrel? Reports suggest that they need prices in the mid $70’s to balance their budget. The largest IPO in history coupled with a desire to balance their budget seems like the perfect storm.
We’re not oblivious to the notion that increasing oil prices entice otherwise dormant oil producers to ramp up production. US shale drillers, for example, have become the unknown catalyst in potentially keeping a ceiling on prices. However, oil production takes time to mobilize, so we think Saudi Arabia has a game plan to exploit the delay. After all, there are billions of dollars on the line.
It will be interesting to watch all the different mechanisms Saudi Arabia employs to accomplish a price increase, but it will likely involve pressure on OPEC and Russia to curb supply. We suspect there will be different stories that come out in the next few months that disguise the true narrative: increase the price of oil for the benefit of the IPO.
We’ve written extensively about how the price of oil directly impacts the commercial real estate market in Edmonton. While it’s anyone’s guess what happens in the future, we are optimistic we will see a positive year in 2018 on the back of rising oil prices. Interestingly, oil is currently at a two year high. The reason? Internal tensions in Saudi Arabia.
Click here to read our article on Blockchain technology and the impact it could have on commercial real estate.
*We previously predicted Clinton would win the US election and that Amazon would choose Edmonton for it’s first Western Canadian fulfillment centre. Had we saw what Dilbert creator Scott Adams saw, perhaps we wouldn’t have ruled out Trump so quickly. Also, Amazon did choose a location a few hundred kilometers south of Edmonton, so we weren’t too far off on that one.