Good Old Saudi Arabia (Market Manipulators)
By Zach Scheidt | January 16, 2018 |

If you or I pulled a stunt like this, we'd go to jail.

(And our faces would be plastered all over the news, our families shamed, and our savings would be taken away.)

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But Saudi Finance Minister Mohammed Al-Jadaan -- along with his counterparts at the Saudi Oil Ministry -- is pulling off one of the biggest market manipulation schemes since the Hunt brothers cornered the silver market in 1980!

The stakes are high in this "pump-and-dump" power play.

And because the economic stability of Saudi Arabia rides on the success of this stunt, you'd better believe the Saudi Kingdom will pull out all of the stops!

Fortunately, as investors, we can play along with the plan, locking in investment profits along the way...

Saudi Arabia's $2 Trillion Asset
Saudi Arabia is planning a landmark deal this year to start diversifying the country's wealth away from just oil production.

But to reduce the country's dependence on selling oil, Saudi Arabia must invest in other assets like international real estate, other commodities, and even shares of private companies.

Crown Prince Mohammed bin Salman has plans to set up the world’s biggest sovereign wealth fund -- which is essentially a mammoth hedge fund owned by the government. The fund's success will be crucial for providing for the financial needs of Saudi Arabia.

But to get this fund up and running, the Saudis need money.

A LOT of money!

And that’s where this year's market manipulation comes in...

You see, today Saudi Arabia has one primary asset -- its state-owned oil company Saudi Aramco, which holds the company's vast underground oil reserves.

And this year, Saudi Arabia plans to sell five percent of this company to the general public through an IPO transaction.

Saudi Arabia has set a $2 trillion valuation for this oil field. So if you do the math, you'll see that the country hopes to receive $100 billion for selling this small percentage. That's just a crazy amount of money!

The Plan: Keep Oil High Until the IPO Is Complete
When talking about dollar figures in the hundred billions or trillions, a small percentage increase can make a huge difference!

And that's why this year, Saudi Arabia needs to do everything possible to keep oil prices rising.

You see, if oil trades higher on the global market, the value of Saudi Aramco will naturally increase. Investors will be willing to pay more for shares of this company, because the value of their underground reserves is higher.

So Saudi Arabia has every incentive to temporarily slow production -- and manipulate oil prices -- so that the country can receive a better price when selling shares.

That's largely why we've seen the price of oil move higher in recent months, and why I expect oil to remain high while the Saudi Aramco deal is being put together.

Even after the IPO is priced, Saudi Arabia will have an incentive to help prop up oil prices. Because if the country wants to raise more capital by selling another 2 or 3 percent of the company, higher oil prices will help them get the best price possible on this additional capital raise.

So investors can expect oil prices to remain high during the first half of 2018.

Here's How to Play it...
With such a positive outlook for oil prices this year, now is a great time to be invested in U.S. companies that benefit from higher oil.

In particular, I'd keep an eye on major integrated oil companies like Exxon Mobil (XOM) and Royal Dutch Shell (RDS.A). Oil service companies like Schlumberger (SLB) and Halliburton (HAL) should also see their businesses grow.

And as U.S. oil companies ramp up production to take advantage of higher prices, they'll be using pipelines to transport crude to refineries. That's great news for pipeline companies like Enbridge Energy Partners (EEP) and Energy Transfer Partners (ETP).

In short, this is a great year to be investing in energy companies.

This article originally appeared on The Daily Reckoning.

 

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