Worst Quarter in Modern History for Saudi Aramco
Saudi Aramco earnings plunged 73.4% in the second quarter, translating to 24.6 billion riyals or $6.57 billion. This is a sharper drop than the analyst forecast of 31.3 billion riyals. The net profit from the same period last year is 92.6 billion.
Consequently, half-year profits plunged for a total of 50% for the year. At $23.3 billion, the figure is half of last year’s $46.9 billion.
Aramco floated a small portion of its shares in the stock market last year after its IPO in December. It had long kept its financial performance secret from the public eye, until its stock market debut.
The move landed Aramco as the biggest publicly traded company. However, the company was overthrown just last month, after Apple stocks hit record-high during the release of its strong fiscal third-quarter earnings. AAPL capped its highest midday gains in stock trading at 6.2% or $408.78 on July 31.
The world’s biggest oil exporter’s fallback is driven by strong macroeconomic headwinds. This is mainly from less energy demand due to reduced mobility particularly air travel.
Travel restrictions meant lesser demand, driving oil prices to low that was never seen in nearly two decades. This affected crude oil, natural gas, and petroleum prices to worse.
Nevertheless, Aramco pledged to distribute $18.75 billion in dividends for the second quarter from its target of $75 billion for 2020. Despite lukewarm earnings, low production cost and operational strength contributed to the company’s profit in the second quarter.
Silver Lining for Oil Industry
Saudi Aramco stocks are up by 0.4% today, where stock trading opened at 33.05 SAR/share. The company currently plays at 33.35 SAR or $8.43 per share.
Its highest per stock price of $10 per share was witnessed in December, while $7.20 in March is its recorded low. Production cuts entering into force in May and June helped stabilize the deteriorating oil price.
Brent crude prices were down 38% from the same quarter last year. Although, for its current price of $45 in the world market, this is a significant pull from its cheapest at $21 per barrel in April.
Recently, there is a partial recovery in demand due to easing restrictions to keep the economy afloat, even when COVID-19 cases remain steady high.
Silver lining starts to peep in China. The largest exporter of the world’s overall production has reverted its demand for diesel and gasoline to the pre-pandemic level, thereby offering hope for a good future for Saudi Aramco.
Similarly, other Asian countries started to drive their oil demand at an upward trajectory which adds to the good mood.
Despite sluggish performance in recent months, Aramco sees to go ahead with its original plan of buying $15 billion worth of stake from Reliance Industries Ltd.
The Indian multinational company specializes in energy, petrochemicals, textiles, natural resources, among others. The deal will put the biggest oil exporter into the ranks of top oil refiners and chemical makers.
Saudi Arabia still heavily depends on oil exports to fund public spending, supporting 60% of the government’s revenue. Oil accounts for nearly 50% of the kingdom’s GDP and 70% of economic exports.
