Wednesday, July 8, 2020

Saudi Aramco: Profit collapses

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Berlin With the corona crisis, the oil price fell worldwide. This also has a massive impact on the business of the world’s largest oil company Saudi Aramco in the first quarter: profit fell by a quarter to Rial 62.5 billion (equivalent to $ 16.7 billion). In the first three months, oil demand slumped primarily in Asia and later in Europe.

Regardless of the drop in earnings, the world’s largest oil producer maintains its record dividend of at least $ 75 billion a year, which was promised when it went public in December. In the first quarter alone, $ 18.75 billion, which is more than profit, is to be distributed to shareholders, the company said in Dhahran in eastern Saudi Arabia. For the fourth quarter of 2019, in which the world’s largest IPO had taken place, $ 13.4 billion had been paid out.

Despite the considerable drop in profits, Aramco is in a much better position than many private competitors from the West: Royal Dutch Shell, Exxon-Mobil, Total and BP had slipped significantly into the loss zone in the first quarter.

The negative numbers are “not surprising,” said Saudi Aramco chief Amin Nasser, referring to the corona pandemic. But he sees “solid profits and a robust cash flow”. However, the company will review its investments. Aramco benefits from low production costs compared to all other listed oil companies, which are estimated at three dollars a barrel.

Meanwhile, oil prices have recovered somewhat. But what happens now for the industry giant is controversial among analysts.

According to the annual report, the company had produced 9.8 million barrels in the first quarter – about one in ten barrels of crude oil available on the market. However, the Saudi Ministry of Energy announced on Monday that it would voluntarily cut its oil production by another million barrels from June to just 7.5 million barrels a day. That would be the 2002 level.

Before the compromise between the Opec oil export cartel and other important producing countries, in which drastic production cuts were agreed to strengthen the dramatically lower oil price, the country had pumped up to 12.3 million barrels of crude oil. The United Arab Emirates, which is closely allied with Saudi Arabia, also announced further cuts in production of 100,000 barrels.

Aramco’s further drastic cut in production raises questions on the market: technically alone, it is a huge challenge to shut down so much without permanently damaging the oil wells.

While Saudi Arabia is “undoubtedly the swing supplier of the market,” said Harry Tchilinguirian, director of strategy for commodity markets at BNP Paribas. But such a large volume change within just a few months is “a big task”.

Michael Hiley of energy trader LPS Futures, however, expressed doubts about the voluntary nature of Aramco’s further reduction in funding: Aramco’s willingness to cut another million barrels “means that they have no buyers for this million”.

Cheap gasoline for the people

The financial situation is bad in any case: Riyadh is rumored that Aramco does not want to pay the $ 69.1 billion for the purchase of 70 percent of the petrochemical company Sabic from the Saudi state fund PIF for the time being. Aramco is also currently not hoping for great synergies with Sabic: the chemical company reported deep red numbers and drastic investment cuts last week.

At the same time, Aramco announced a halving of its gasoline prices at home. This should at least somewhat compensate for the massive budget cuts announced by Saudi Finance Minister Mohammed Al-Jadaan on Monday. Al-Jadaan plans to relieve the expected budget deficit of 15.7 percent of gross domestic product somewhat by tripling VAT to 15 percent, cutting budgets by almost $ 27 billion and increasing borrowing to $ 60 billion.

More: The rally on the oil markets remains fragile

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