Malik Nasir Mahmood Aslam describes a Saudi oil profits soar
The Russian-Ukrainian conflict has brought Saudi oil profits soar and considerable financial difficulties in its wake and its effects are universal with inflation hurting almost all global economies. Interestingly, the inflationary spiral has affected the developed world more with the result that its trickledown effect has burdened economies of the developing world. Though this situation has unnerved the world yet it has brought an unexpected financial windfall for Saudi Arabia whose energy giant Aramco says its profits have nearly doubled compared with last year. Saudi Aramco, almost totally owned by the Saudi government has seen its oil in great demand with the demand getting higher by the day. The company announced that its profits had leapt by nearly 90% in the second quarter of the year. This is an enormous rise in profits by any standard and it may prove a tremendous fillip to the modernization programmes undertaken by Saudi crown prince Mohammad bin Salman (MBS). It is thought to be one of the largest quarterly profits in history, when disregarding one-off increases that tend to inflate company earnings, and is Aramco’s highest since its shares were listed on Riyadh’s stock market in December 2019. The windfall for the Saudi government, which will take the bulk of an $18.8 billion dividend set to be distributed by the end of October. Aramco’s massive Q2 windfall was the biggest quarterly adjusted profit of any listed company worldwide. It is quite a turnaround for the fortunes of the company as quite recently, the IPO of Saudi Aramco did not fetch the kind of response that the Saudi regime expected particularly after the killing of Saudi journalist Khashoggi, whose death was alleged to have been caused by official Saudi circles, that was universally condemned.
Saudi Aramco reaped a half-year income of $48.4 billion in profits between April and June this year, compared with $25.5 billion last year. Aramco enjoyed a similar surge in profits for the first three months, with the latest figure representing a quarterly record since Aramco that was partially floated in 2019. Saudi Aramco is known to be the main source of income for Saudi Arabia and is widely regarded having temporarily surpassed Apple as the most valuable company in the world earlier this year but now is second in the list. Half-year-earnings of Saudi Aramco reached nearly $88 billion, a boon for the country with a caveat, however, despite years of efforts to diversify the economy, Saudi Arabia still relies heavily on oil and gas sales for revenue. Many oil experts point out that keeping in view the increasing demands of oil after post-pandemic opening up of the world the trend of soaring profits would continue. It is also mentioned that while global market volatility and economic uncertainty remain, events during the first half of this year support the view that it is required to ensure that markets remain well supplied facilitating an orderly energy transition.
Interestingly, oil prices have fallen from a peak in June by more than $30 per barrel but remain close to $100. Despite pressure from Western leaders including US President Biden, the OPEC group of oil-producing countries has been raising production only gradually and that the same has been true of non-OPEC producers, led by Russia. Currently, Saudi Arabia produces about 10 million barrels per day and it possesses the maximum production capacity of 13 million barrels. Its main customer for crude petroleum was China with $24.7 billion in 2020 followed by Japan at $15.1 billion, South Korea $12.8 billion, India $11.8 billion and the United States $6.6 billion. The increase in demand comes as western governments try to wean themselves off Russian energy supplies in order to put further political and economic pressure on Moscow over its invasion of Ukraine. NATO allies have been trying to find other sources for energy, creating further demand for oil from other suppliers including Saudi Arabia. That demand sent the price of Brent crude, the international benchmark for oil, as high as $120 a barrel in June, although prices settled near $98 this week. Soaring demand for oil has also contributed to phenomenal profits for a number of oil producers, including BP and Shell. Shell last month revealed that it made almost £10 billion in profit between April and June, a record for the firm. Meanwhile, BP’s profits tripled to almost £7 billion in the second quarter, prompting it to give billions of pounds to shareholders. However, oil companies’ profits have been controversial, as increasing energy prices have caused inflation to soar in lots of countries including the UK, with many expected to tip into recession over the coming months as a result. Saudi Aramco joins other oil majors that have reported strong results in recent weeks. On 29 July, Exxon Mobil Corp posted its biggest quarterly profit ever, a net income of $17.9 billion, an almost four-fold increase over the year earlier period. Margins for making fuels like gasoline and diesel surged worldwide, boosting the profits of oil giants, including European majors such as Chevron, Eni and Total Energies, both of which reported results on 27 July.
Saudi Aramco floated 1.7 per cent of its shares on the Saudi bourse in December 2019, generating $29.4 billion in the world’s biggest initial public offering and its current market valuation is known to be $2.4 trillion. Despite raising production, Aramco has pledged to reach operational net zero (carbon) emissions by 2050. Carbon pollution is tallied in the country that uses the fuel, not where it is produced.Saudi GDP jumped nearly 12 percent in Q2 on the back of high oil prices with analysts mention this oil bonanza as a golden opportunity for MBS’ future plans. It is added that Saudi Arabia has recently achieved financial surpluses that it did not achieve during the last decade, which helps to provide financing for its development projects.The OPEC group of oil-producing countries has been gradually raising production, despite pressure from Western leaders including Joe Biden and Boris Johnson contributing to the inflationary pain suffered by consumers worldwide compelling Biden to advocate higher taxes on oil companies. Apparently under pressure, earlier this month Aramco slashed the price of Arab Light crude in Asia from $9.35 to $4.40 a barrel to help ease rising energy costs for buyers. Aramco mentioned that it considers energy security vital and is investing for the long term, expanding its oil and gas production capacity to meet anticipated demand growth and creating long-term shareholder value by capitalizing on low lifting cost, low upstream carbon intensity, and integrated downstream business in Asia and Europe. Russia is one of the world’s biggest exporters but Western nations have pledged to curb their dependence on the country for their energy needs. Saudi Arabia is the largest single producer in OPEC, a group representing the world’s biggest oil producers. Oil prices were already rising before the Ukraine war as economies started to recover from the Covid-19 pandemic and demand outstripped supply. Last week OPEC+ agreed to raise production slightly in an effort to help ease high oil prices. However, the latest production output increase is at a much slower pace than in recent months. TW