Even within the Saudi government, doubts are emerging. A person familiar with the flotation, who asked not to be named, said last week Aramco in its current form would probably be worth about $500 billion because a lot of its cash goes toward taxes and future investors won’t have a say on investments in non-core areas. Another person familiar with IPO talks put the figure at a little less than $1 trillion if investors base the valuation on Aramco’s ability to generate cash.

Selling a 5 percent stake would therefore raise at least $25 billion, still enough to match Alibaba Group Holding Ltd.’s unparalleled 2014 offering and dole out millions of dollars of fees to the advisers hired to manage the sale, namely JPMorgan Chase & Co., Moelis & Co. and independent consultant Michael Klein.

The $2 trillion estimate was initially put forward by Deputy Crown Prince Mohammed bin Salman last March. There are two key issues, according to interviews with a dozen industry analysts, investors and executives, who asked not to be named because of the sensitivity of the matter.

The first is that it’s premised on a simple calculation: Take the 261 billion barrels of reserves Saudi Arabia says lie under oil fields like the onshore Ghawar and offshore Safaniya, and multiply by $8 (a benchmark used to value reserves). An independent auditor is assessing Saudi reserves, the second- biggest worldwide, before the IPO.

Eoin Treacy's view

When is the best time to IPO your company? When you can get more for it than you think it is worth. Saudi Arabia is one of the only participants in the oil business which has to have a really long-term perspective. Exxon Mobil and BP put out long-term forecasts for the energy market stretching into the 2030s but Saudi Arabia tends to think in 50-year timeframes. 

The energy density of batteries is doubling every five years. That means by 2050 batteries will have 128 times more energy density than they do today. Couple that with the fact that the cost per watt for solar cells remains on a downward trajectory and there is real potential for everyone to have energy independence within our lifetimes. For a country like Saudi Arabia, which has made a fortune from exporting oil that represents an existential challenge. Raising $100 billion to invest in technology to try and ensure the country’s economic viability is viewed as a necessity rather than a choice by the new administration. 

With that in mind they have an interest in supporting prices ahead of the IPO. The alacrity with which independent US producers are pursuing their business represents a challenge to Saudi Arabia which has contributed to the fine balance in oil prices that has resulted in a very tight range since late December. Ranges are explosions waiting to happen and oil is characteristically volatile so the breakout, when it comes, is likely to be dynamic in nature.

Our medium-term outlook is for prolonged ranging so even if the short-term range is resolved on the upside rallies are unlikely to be sustained beyond a few months because so much additional supply becomes economic at higher prices.

Right now the offshore drilling sector is among the most depressed segments of the energy complex and is among the most heavily leveraged to higher oil prices. Diamond Offshore Drilling has at least stabilised while Transocean has bounced from the region of its trend mean.