Why does Saudi Aramco share continue to fall?

Muhammad Afazaz

The shares of Saudi Aramco continued its decline since its listing on the stock market on December 11th, despite the company's announcement yesterday of its intention to launch a major project for shale gas, in addition to signing local and international agreements in the billions of dollars. What are the reasons? What are the expectations of the stock's future performance?

And Aramco shares fell during the trading session today, Tuesday, about 0.9% at 33.10 riyals, before reducing its losses a little, and this level is far from the highest level recorded by the company’s share when it reached 38 riyals on December 16 last.

Yesterday, Aramco, the world's largest oil producer, closed down 1.9% to settle at 33.40 riyals.

This decline comes despite the fact that Saudi Aramco CEO Amin Al-Nasser said on Monday that the company is launching the largest project to exploit shale gas outside the United States to boost domestic gas supplies and end oil burning in its power plants.

Aramco said last Saturday that it had received regulatory approval to develop the unconventional gas field, and expects production to start in early 2024.

The company also signed dozens of memoranda of understanding and strategic and commercial cooperation with a value in excess of $ 20 billion with local and international partners, according to the "Arqaam" website specialized in economics and business.

For the entire Saudi market, the general index continued its declines in trading on Tuesday, against the backdrop of a semi-collective decline of sectors.

The main Saudi benchmark fell another 0.8%, after yesterday's biggest loss in more than nine months. Yesterday, the general index fell about 3%, which is the biggest loss for the index since May 13.

Most major stock exchanges in the Middle East also fell on Tuesday. The Gulf markets ended yesterday's sessions, after Arab countries, including Kuwait and Bahrain, announced that they had recorded cases of the Corona virus.

Kuwait announced that the number of HIV infections in the country had risen to eight.

Countries such as Iraq, Kuwait, Turkey, Jordan, Israel, and countries in the European Union have implemented measures and restrictions on their borders to prevent the transmission of the virus to its territory by citizens of countries where the virus has spread, such as China, South Korea, and Iran.

Fears
The general manager of Nama Financial Advisors, Taha Abdul Ghani, said that Aramco’s share, as is the case with shares of oil and petrochemical companies in the Gulf region, is affected at the present time by a number of data, perhaps the most prominent of which are the fears of the spread of the Corona virus and its effects on global markets, and the decline in oil prices in light of the glut On display.

He added in an interview with Al-Jazeera Net that the small economies are no longer affected by what is happening to the major economies, foremost of which is the Chinese economy, which is suffering due to the outbreak of the new Corona virus.

Taha Abdul-Ghani did not rule out that Aramco will continue to decline in the coming period if the Corona virus, which started to crawl towards the Gulf region, is not surrounded.

Oil contracts lost most of their gains made since the start of trading. Brent contracts reached about $ 56.33 a barrel. Also, US crude contracts settled at $ 51.41.

And oil contracts fell in the previous session by more than 4%. Brent hit its biggest daily fall since early this month as a result of concerns over the outbreak of the Coruna virus.

For his part, the director of trading in the investment house company, Walid Faghaha, said that Aramco’s share has fallen to less than the levels recorded at the beginning of the stock’s listing in December this year due to several factors, the most important of which is the decline in investor confidence in the stock, and the decline in global demand for oil due to the effects of Corona In addition to the repercussions of the troubled geopolitical factors in the region.

Attacks
The jurists added in an interview with Al-Jazeera Net that the increase in American production and the decline of the American market's dependence on Gulf oil have cast a shadow over the investors ’options, noting that the attacks on Aramco's facilities in the recent period put more than a question mark in front of the Kingdom of Saudi Arabia's ability to protect its oil facilities.

Walid Fuqaha pointed out that the Corona virus had a great impact in terms of reducing the volume of global oil demand, which fell by more levels than the size of the cut that OPEC countries and other producers, led by Russia, resorted to.

The jurists did not rule out that Aramco's share would fall to a level close to the first listing price if Saudi oil installations were again attacked.

On the other hand, some analysts considered that the drop in stock prices in the Gulf markets constitutes an opportunity for purchase by investors, and they added in an interview with Al-Jazeera Net that many stocks seem cheap and suitable for purchase, noting that these declines are unjustified.

Russell Hardy, president of the Vitol Group, said in an interview with Bloomberg TV a few days ago that oil markets are facing a demand shortfall of 200 million barrels during the first quarter, in light of a decline rate of four million barrels per day from China due to the economy being affected by the Corona virus and restrictions on travel.

But he added that declining supplies from Libya and Venezuela and the prospects for reducing production expected from OPEC countries alleviate fears in the markets.

He continued, "All these factors will help balance the 200 million barrels, which will leave the market in a better position during the second half of this year."