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Buying the Aramco IPO would be like 'buying Blockbuster in the age of Netflix'

  • Saudi Arabia's Aramco, the world's largest oil company, said on Monday that it is still on track for its initial public offering in the second half of 2018.
  • Here's why I believe the stock would be too risky a bet.
Amin al-Nasser, Chief Executive of state oil company Saudi Aramco.
Mary Catherine Wellons | CNBC
Amin al-Nasser, Chief Executive of state oil company Saudi Aramco.

Saudi Arabia's Aramco, the world's largest oil company, said on Monday that it is still on track for its initial public offering in the second half of 2018. It will be listed on the Saudi domestic stock market but where it will be listed overseas is still up in the air.

Here's why it's a risky bet no matter where the shares are listed.

I am afraid the energy created by dinosaurs is becoming one; oil is a dying commodity. Even Aramco's CEO Amin Nasser admitted as much on CNBC on Monday, noting that his company is doing what it can to "minimize our carbon footprint."

Over 70 percent of every barrel of Aramco crude is used for autos and trucks in one way or another, Mr. Nasser said. About 50 percent is gasoline alone and the rest is used for diesel, motor oil, tires and other car-related products. With a worldwide push to eliminate the internal combustion engine, the demand for oil five years from now will be far less than it is today. That doesn't bode well for Aramco's business model.

General Motors, Volvo and Mercedes have all announced plans to phase out gasoline powered cars. The alternative energy market is growing rapidly as natural gas, wind and solar replace oil. In the U.S. alone, renewable energy sources accounted for 10 percent of total energy consumption and 15 percent of electricity generation, according to the U.S. Energy Information Administration.

"General Motors, Volvo and Mercedes have all announced plans to phase out gasoline powered cars."

That number is surely going up as the push for alternatives gains ground.

Already, we are seeing signs of oil's decline. Gasoline demand never rose in this country this year, even though more cars were sold. That tells me that people are buying more efficient cars, using more public transportation or using ride-sharing apps like Uber. Indeed, millennials are less inclined to buy cars or even get a driver's license.

I would compare buying the Aramco IPO to buying a Blockbuster video franchise in the age of Netflix. The timing is all wrong.

On the financial side, IPO's involve a lot of scrutiny. If I was an investor I'd want to see the bottom line, how the company is spending its money. The Saudis opening their books to outsiders is something I find difficult to comprehend when the Saudi government, which owns 100 percent of the company, is far less transparent than those in the West. I don't believe the Saudi's want to invite that kind of scrutiny, which could put the IPO in a holding pattern despite recent assurances.

On a recent trip to Russia to discuss renewing the OPEC deal—the entourage from the kingdom was a reported 1,200 person affair and the video of the gold staircase leading from the plane was seen all around the world. As an investor, I'd have to ask myself, "Is my stock purchase subsidizing that lifestyle?"

For me, Aramco is not a "buy."

Commentary by Anthony Grisanti, founder and president of GRZ ENERGY, who has over 30 years of experience in the futures industry. He appears on CNBC.com's "Futures Now" on Tues. and Thurs. at 1 pm. Follow him on Twitter @AnthonyGriz.

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