Saudi Aramco is a big state oil company in Saudi Arabia. Saudi Aramco is the biggest oil company in the world. When we look at the market capitalization of the company it is also the biggest company of the world. It may be wise to invest in Saudi Aramco, since they have an annual profit of more than 100 billion dollars. But, how can you buy shares in Saudi Aramco?
How can you invest in Saudi Aramco?
You can invest in Saudi Aramco by using two different methods: you can actively trade in CFD shares Saudi Aramco or you can buy the share directly.
Active trading in Saudi Aramco
You can benefit optimally from the price fluctuations of the stock by trading actively. Plus500 is a good broker to trade actively in the price development of Saudi Aramco. You can trade in an increasing or decreasing stock market price by using CFDs at Plus500. Would you like to try this method of trading without risk? Use the following button to open a free trial account:
Buying Saudi Aramco shares
It is very hard for foreign investors to buy shares in Saudi Aramco at the moment. At this moment, the shares are only traded on Tadawul, the stock market of Saudi Arabia. If you want to invest in Saudi Aramco for the long term, you will have to use an indirect method. For example, you could choose to purchase participations in the iShares MSCI Saudi Arabia fund. This fund consists of big firms in Saudi Arabia, and Saudi Aramco is one of those firms.
You could also trade with derivatives in the price development of Saudi Aramco in the long term. eToro is a great firm to invest in Saudi Aramco. You can buy shares in Saudi Aramco without any transaction costs at eToro. Use the following button to open a free account:
What does Saudi Aramco do?
Saudi Aramco mainly focuses on exploiting big oil fields in Saudi Arabia. In 1984, the biggest oil field of the world was discovered in Saudi Arabia. At first, several foreign companies exploited these fields. However, the state wanted more control over these oilfields, so they decided to buy the other parties out. Nowadays, the government of Saudi Arabia is the owner of the company.
Saudi Aramco reports having a supply of 260 billion oil drums. It isn’t completely clear how much reserves they actually have. Saudi Arabia produces broadly 3 billion oil drums, but the supply has never changed. In reality, the supply could be lower than estimated.
Saudi Aramco is responsible for the production of 10% of all oil in the world at this moment. A large portion of the oil is exported to other countries. 65% of the oil is exported to other countries in the Middle East and 15% is exported to the United States of America. Saudi Arabia is heavily dependent on the production of oil: more than half of the total national income stems from the sale of oil.
Why did the company go to the stock exchange?
Saudi Aramco went to the stock market to raise more money for other investments. The future of oil is uncertain: these days, sustainability becomes more important, which results in a decreasing popularity of oil. That’s exactly why Saudi Arabia wants to rely less on this specific market.
The first stock listing was very modest: the government has only sold 2% of all available shares. With this small initial listing they already managed to raise 25 billion dollars which they can invest in other sectors.
What are the risks of investing in Saudi Aramco?
Investing in Saudi Aramco isn’t without any risks. In this part of the article we will discuss the most important risks of an investment in these shares.
Dependency on the oil price
Oil firms like Saudi Aramco are very dependent on the oil price for their success. Estimates of Bernstein show an increased yearly profit of $15 billion per $1 increase in the oil price.
The oil price increases when the economy is buoyant. Aeroplanes and machines use oil, and when there is a lot of production, the demand for the black gold will logically increase as well. When you invest in a company like Saudi Aramco, you are highly dependent on the worldwide economy.
Lack of control
You won’t have any control over the company as a shareholder in Saudi Aramco. Normally, you would have a say in the future of the firm. In this case, the government is the main shareholder of the firm.
You will be dependent on the decisions made by the government. But, you must ask yourself if you trust the government of Saudi Arabia enough before you buy the shares.
If it is important to you that you’re investing in a socially responsible organization, you probably won’t like Saudi Aramco. The country doesn’t really care about human rights and by buying shares in Saudi Aramco, you are directly supporting their regime.
The promised dividend payments of Saudi Aramco are lower than those of a company like Shell. When you invest to generate an income, you should buy shares that offer a higher dividend payment.
Investing in an exotic region like Saudi Arabia brings its uncertainty with it. When you’re investing in the United States or Europe, you know what your rights are. This is not the case when you’re investing in Saudi Arabia.
The region is very unstable. Fairly recent, the oil wells of Saudi Aramco were attacked by drones. This resulted in big fires and a strong decrease in the production capacity. The company managed to build this capacity up to its former level. Nevertheless, this instability results in great uncertainty for investors.
Limited risk spread
One last risk of investing in Saudi Aramco would be the limited spread of risks. A lot of oil firms have oil fields in several regions. The oil fields of Saudi Aramco are all situated in Saudi Arabia. When something bad happens to this region, all shares will decrease in value.
Why is Saudi Aramco still interesting?
Besides the disadvantages, it could still be interesting to buy shares in Saudi Aramco. Oil is till this day a crucial resource in our global economy. It is completely true that sustainability is becoming more popular by the day.
Nevertheless, it is likely that oil will still be one of the most important resources in our economy. The global economy is still growing and chances are that the demand for oil will keep on increasing. A firm with 18% of the worldwide oil reserves has a strong position in the market.