You’d never expect Saudi Aramco to linger too long in difficulty and a recent announcement by Saudi Crown Prince Mohammed Bin Salman (MBS) helped lift the company from its doldrums.
A tough 2020 for Aramco
With COVID-19 curbing travel and constraining economic activity around the world last year, Aramco wasn’t spared the global financial carnage and recently announced that its net profit fell 44.4% to $49 billion in 2020.
Aramco is committed to spending about $35 bn in 2021 on capital expenditures, down sharply from its previous estimate of $40 bn to $45 bn.
It maintained its $75 bn dividends for the year (98% back to the Saudi government) and the company thinks it will return to pre-pandemic oil production levels by the end of 2021.
Aramco President and CEO Amin Nasser said on a call with reporters he is very optimistic about 2021, and he expects the company to reach close to 9.9 million barrels per day by the end of the year.
Brent traded at $64 on March 31, 2021, down from $70 earlier in March.
Aramco shares rose as much as 2.7%, the most since May last year and the Saudi stock index was 1.7% higher in Riyadh trading after the government allowed the oil company to cut dividends and redirect the cash into new investments to fulfill the crown prince’s economic plans.
Aramco and its subsidiary Saudi Basic Industries Corp. (SABIC) have committed to funding the majority (60%) of a 5 trillion riyals ($1.3 bn) private sector investment plan in a deal with the government.
The dividend cut won’t impact minority shareholders, the crown prince said. The government had promised they would get their share of the total payout for five years after Aramco sold a small stake in its 2019 initial public offering. The Saudi government still owns 98% of the firm.
Oil production cuts to continue
Saudi pledged this year that it will undertake an additional, unilateral cut of 1 million bpd on top of its OPEC+ quota. This brought its average daily production to just 8.15 million bpd as of February, according to the latest Monthly Oil Market Report of the cartel.
The February 2021 figure was 930,000 bpd lower than the average for January this year and compared with an average of 9.77 million bpd for 2019 and 9.18 million bpd for 2020.
This has bolstered oil prices against the unsteady pandemic prognosis.
As OPEC+ prepares to meet on April 1 to decide on May output levels, the market awaits word from Saudi energy minister Prince Abdulaziz bin Salman on when the kingdom will begin easing its production restraint.
Early indications are that it may not be soon.
Faltering oil prices in recent days – after a weeks-long surge to around $70/b – have many analysts forecasting that the so-called OPEC+ group may largely roll over its quotas for at least another month.
The OPEC Secretariat is revising down its forecast of 2021 oil demand growth to 5.6 million bpd, down from a previous estimate of 5.9 million bpd, delegates told S&P Global Platts.
The alliance’s current quotas are keeping more than 7.1 million bpd of crude production off the market, with Saudi Arabia adding its extra 1 million bpd cut on top.
Under its agreement, the bloc can adjust output caps by up to a collective 500,000 bpd each month.