Saudi Aramco is optimistic about oil recovery

Although Saudi Aramco CEO Amin Nasser is optimistic about the recovery of the global oil market, in the eyes of the outside world, the epidemic is still a curse that the oil market cannot escape, and it may depend on when it will recover.

Although there has been a sharp decline, fortunately, Saudi Aramco still remains profitable. According to Saudi Aramco’s financial report, in the second quarter of this year, Saudi Aramco’s net profit was US$6.6 billion, while the net profit of the same period last year was US$24.7 billion, down 73% year-on-year. In the first half of the year, the company's net profit was US$23.2 billion, compared with US$46.9 billion in the same period last year, a year-on-year decline of 50.5%.

In addition, Saudi Aramco’s free cash flow in the second quarter was US$6.1 billion and US$21.1 billion in the first half of the year; compared with US$20.6 billion and US$38 billion in the same period in 2019. The company also predicts that capital expenditures in 2020 will be between 25 billion and 30 billion US dollars.

In an interview, Nasser also said frankly that Saudi Aramco's performance in the second quarter was hit by a double blow from falling energy demand and lower oil prices. Regarding the recovery of performance, a reporter from Beijing Business Daily contacted Saudi Aramco, but as of press time, no response was received.

It is worth noting that despite the decline in profits, this does not hinder Saudi Aramco's bold dividend. Saudi Aramco has decided to insist on distributing a dividend of US$18.75 billion in the second quarter. Earlier, Saudi Aramco had promised that it would pay a dividend of US$75 billion this year. Such an approach is also a bit rare in the entire oil industry. Before Saudi Aramco, BP cut its dividend for the first time in ten years after a record loss of US$6.7 billion in the second quarter; Shell also cut its dividend in April. This is the first time Shell has cut its dividend since World War II.

This also illustrates a situation. Although profits and cash flow have fallen sharply, Saudi Aramco is still the leader in the industry. In addition to BP and Shell, Total, Chevron, and Exxon Mobil have all announced their second-quarter financial results, and the five major oil giants have all suffered losses without exception. Among them, Total lost 8.4 billion U.S. dollars; Chevron lost 8.27 billion U.S. dollars, its worst level in more than 30 years; Exxon Mobil lost 1.1 billion U.S. dollars, also the company’s worst performance since World War II .

Fortunately, the oil market may already be bright. Nasser said that as countries gradually begin to relax epidemic prevention restrictions and plan to revive the economy, the energy market will return to its original track. Global oil demand is recovering. This may be a signal that Saudi Aramco wants to send.
　

In fact, the global blockade program brought about by the epidemic has led to a substantial reduction in various commercial activities, and the demand for crude oil and petroleum products has also been severely contracted, which has suppressed oil prices. Since then, the sudden price war has made the crude oil market worse. . After a series of ups and downs, OPEC finally reached an agreement to cut production, coupled with the slight easing of the epidemic, the shadow of negative oil prices was finally shaken off.


But in the eyes of industry insiders, Saudi Aramco's expectations may be somewhat optimistic. Lin Boqiang, director of the China Energy Economic Research Center of Xiamen University, said that the recovery time of the oil market depends entirely on the direction of the epidemic, including how long it will last and whether the situation will become more serious will affect the oil market. At present, all companies say that demand will improve, but in fact, the overall situation is still full of great uncertainty. It is also uncertain whether Saudi Arabia is willing to continue to substantially reduce production in the future.
　

Lin Boqiang also mentioned another key issue, namely, the Saudis behind Saudi Aramco. Lin Boqiang said that Saudi Aramco is an upstream company, and its condition depends entirely on the price of oil. From the company's point of view, Saudi Aramco is unlikely to lose money. After all, its oil cost is very low, but the profit is good or bad. problem. The real problem for Saudi Arabia is insufficient fiscal expenditure, because Saudi Aramco is the backbone of Saudi Arabia’s economy. Only when the oil reaches 80 US dollars per barrel can it support Saudi fiscal expenditure. For Saudi Aramco, the current 40 US dollars per barrel is enough. But the fact that Saudi Aramco is enough does not mean that Saudi Arabia is enough. As far as the current situation is concerned, the entire country of Saudi Arabia should still be uncomfortable.　

This also indirectly proves why Saudi Aramco still insists on paying dividends against the background of the sharp decline in net profit. It is important to know that the Saudi government holds about 98% of the company's shares. The dividends paid are largely related to Saudi Arabia's finances. While the epidemic hits the global economy indiscriminately, it is difficult for Saudi finances to stand alone.　

Previously, the IMF estimated that Saudi Arabia's budget deficit this year will account for more than 12% of GDP, the highest value since 2016. At the very beginning, the decision of Saudi Aramco to go public has already shouldered a major task for Saudi Arabia to diversify its national economy.