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Saudi Arabia to press for higher oil prices ahead of Aramco IPO

Brittany De Lea

Ahead of the next meeting of the Organization of the Petroleum Exporting Countries in December, the group’s largest producer — Saudi Arabia — may be cracking down on other members to fall in line with production cuts.

Saudi Arabia, as OPEC's biggest exporter, has been called the organization's "first among equals" by the Council of Foreign Relations, is hoping to keep oil prices high ahead of the highly-anticipated state-owned Aramco IPO, people familiar with the matter told The Wall Street Journal on Wednesday. To do so, it is pressuring countries that have not complied with production cuts to fall in line, the publication reported.

In July, the group agreed to extend crude oil production cuts for nine months. Restricting supply is aimed at lifting prices.

Nigeria is reportedly on board to convince members in Africa to comply, according to the Journal. Iran's Minister of Petroleum also seems to be in agreement with the plan. “There are discussions regarding more reductions to the group’s oil output which will be considered in the upcoming meeting,” Bijan Zanganeh told Iran's Mehr news agency.

As Saudi Arabia seeks to diversify its economy by reducing its reliance on oil revenue, it will transfer 5 percent of state-owned Saudi Aramco to its Public Investment Fund (PIF) through its initial public offering which is expected to be the largest in history. The IPO is slated for December possibly following the OPEC meeting in Vienna on Dec. 5th. The country has been pressed by falling oil prices throughout recent years, which plummeted in 2014. Higher oil prices would boost the valuation of the Aramco IPO.

The Journal reported that Aramco’s growth assumptions and dividend promises are pegged to oil prices around $65 per barrel. Prices have faltered throughout recent months amid rising production competition from the U.S.

West Texas Intermediate was down more than 1 percent on Wednesday, trading around $56.52, while Brent also fell more than 1.6 percent to $61.90.

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The Aramco IPO is part of a comprehensive plan, known as Vision 2030, laid out in April 2017 by the country’s leaders.

Aramco formally announced a plan this week to launch an IPO on its domestic exchange on Dec. 11 – 6 days after the OPEC meeting in Vienna. At the meeting, the group is expected to cut production by 1.2 million barrels per day.

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