Since April, Saudi Aramco has earned more than $90 billion. The OPEC production cut makes the world’s largest oil company fall softly.
Saudi Aramco produces oil at particularly low costs and with particularly high profits.
“A Swiss cheese is nothing compared to that.” With these words, Saudi Arabia’s energy minister, Abdulaziz bin Salman Al Saud, justified OPEC’s controversial cut in crude oil production a month ago. The minister referred to the size of the gaps or gaps between oil price forecasts. The producing countries no longer want to accept this price uncertainty. The members and associated countries of the Organization of the Petroleum Exporting Countries decided in early October that they would reduce their production by 2 million barrels per day.
When the Ukraine war is no longer enough
That pleases Saudi Aramco, the largest oil producer in the world. There is a lot of money at stake for him: From July to the end of September, the Saudi state-owned company made a net profit of 42.4 billion dollars, as it reported on Tuesday. That’s almost 40 percent more than a year ago and more than analysts had expected. It’s also the second-highest figure in the company’s history, after the previous quarter’s $48.4 billion. The reason for the decline is the correction in the price of crude oil, which fell below the $100 per barrel mark for the first time in six months in August for the reference variety Brent. Previously, the Ukraine war had driven him up.
This prompted Saudi Arabia-led Opec+, as the group of 23 countries is called, to act. The intervention helped curb the price decline. A barrel of Brent stays at $94. Although the subsidy cut has severely damaged the political relationship between the USA and Saudi Arabia, the persistently high price level ensures Riyadh high dividends. Aramco is almost entirely state-owned despite an IPO in 2019. Dividends of at least 75 billion dollars per year are planned, the highest dividend of any corporation worldwide. It is financed from free cash flow, which climbed to a record nearly $45 billion in the third quarter alone.
“Our primary concern is the Kingdom of Saudi Arabia,” Abdulaziz bin Salman Al Saud told a national television station after the Opec+ decision. On the international stage, he prefers to refer to his concern for the global economy, because it is interested in a stable oil supply – and only reasonable prices prompt the producing countries to invest in order to secure production for the future. Saudi Aramco wants to increase its own production capacity by 1 million to 13 million barrels per day by 2027. Capital investment is expected to be between $40 billion and $50 billion this year.
Opec+ cuts, but Riyadh actually wants to produce more oil
The temptation of the high prices makes Riad act Janus-faced. Although Saudi Arabia felt the time had come for an Opec+ cut, Aramco was still producing 11 million barrels a day of crude oil in September despite the price drop — near a record level. Because even though oil prices have fallen, they are still remarkably high. Sustained prices above $100 per barrel of Brent were last recorded between 2011 and 2014. Because Aramco produces at particularly low costs, the profit margin is particularly large.
Margins are lower for western oil companies, but profits are still exceptional – although they have fallen slightly compared to the previous quarter due to the drop in prices. BP beat expectations on Tuesday, reporting adjusted profit of $8.2 billion for the third quarter. Shell, Europe’s largest oil and gas company, earned $9.5 billion. In the US, Exxon and Chevron shone with record-breaking deals. President Joe Biden on Monday accused American companies of profiting from the Ukraine war. He called for price reductions at gas stations and otherwise threatened tax increases.
You can refer to Benjamin Triebe, Editor for Business and Business Twitter follow.