Saudi Aramco Q2 profits drop 38% on lower prices: statement

 Saudi Aramco's Q2 profits fall 38% on lower prices: statement

Oil company Saudi Aramco on Monday reported second-quarter profit of $30.08 billion, a sharp decline from the same period last year, when prices surged after Russia invaded Ukraine.The 38 percent year-on-year decline "primarily reflected the impact of lower oil prices and weakening refining and chemical margins," the largely state-owned company said in a statement to the Saudi stock exchange.

The decline followed a 19.25 percent decline in net profit in the first quarter.Aramco CEO Amin Nasser said in a separate statement that "our strong performance reflects our resilience and ability to adapt to market cycles."

"The company's medium to long-term outlook remains unchanged," he added."With an expected recovery in the wider global economy, along with increased activity in the aviation sector, ongoing investment in energy projects will be necessary to ensure energy security."

Output from the world's biggest oil exporter fell after Riyadh announced a 500,000 bpd cut in April, part of a coordinated move with other oil majors to reduce supply by more than one million bpd in a bid to support prices.In June, the Saudi Ministry of Energy announced another voluntary cut of one million bpd, which took effect in July and was extended until September.

The kingdom's daily output is now around nine million barrels per day, well below its stated daily capacity of 12 million barrels per day.Aramco is a major source of revenue for Crown Prince Mohammed bin Salman's sweeping economic and social reform program known as Vision 2030, which aims to shift the economy away from fossil fuels.

Analysts say the kingdom needs oil to hover around $80 a barrel to balance its budget.Prices are now above this line, a sign that the recent reduction in supply is starting to have the desired effect.U.S. benchmark West Texas Intermediate crude for September delivery was trading at $82.54 on Monday, and European benchmark Brent crude futures were just below $86.After Russia's invasion of Ukraine in February 2022, oil peaked at more than $130 a barrel.

- "Phenomenal Characters" -

The cuts "show how far the kingdom will go to defend oil prices as a slumping market for its lifeblood hurts its ambitious economic diversification efforts," said Herman Wang, deputy director of oil news at S&P Global Commodity Insights.Aramco is investing to increase national production capacity to 13 million barrels per day by 2027.

"It is an expensive proposition for Aramco to keep production capacity offline in the name of OPEC+ cuts, but we hope that the sacrifice we are making now will eventually pay off in higher prices," Wang said, referring to the Petroleum Organization. Exporting countries led by Riyadh and their 10 allies led by Moscow.Aramco posted record profits totaling $161.1 billion last year, allowing the kingdom to post its first annual budget surplus in nearly a decade.

Still, these "were phenomenal numbers driven by a very specific set of geopolitical factors, and the Saudi leadership could not have predicted Vision 2030 spending for such results," said Jamie Ingram, senior editor at the Middle East Economic Survey."Of course officials would prefer higher revenues, but Saudi Arabia still has a very low level of debt and strong reserves that it can draw on," Ingram added.

Nasser told reporters on Monday that global demand was expected to "increase by around 2.4 million barrels (per day) in the third quarter of 2023 compared to the same period last year", an increase led mainly by China, where demand was "stronger , than expected". ".

Saudi Arabia owns 90 percent of Aramco.

Aramco's basic dividend for the second quarter will be $19.5 billion, the same as the first quarter, the company said.It will also distribute a new performance-linked dividend of $9.9 billion in the third quarter and expects to pay similar dividends in the next six quarters.

Saudi Aramco, the world's largest oil company, revealed a significant drop in its second quarter profits in a recent official statement. The decline, reaching a remarkable 38%, was primarily attributed to the impact of lower oil prices in the global market. As oil prices continue to fluctuate, the company faces challenges in maintaining its financial performance, which has major implications for the company itself and the global oil industry.

Understanding the Q2 Profit Decline:

Saudi Aramco's 38% drop in Q2 profit comes amid volatile oil prices, geopolitical tensions and economic uncertainties that have disrupted the global energy scene. Despite its huge reserves and dominant market position, the company is struggling with the changing dynamics of the oil market, which is causing financial pressures on its operations.

Oil Price Volatility: The main driver of Saudi Aramco's profit decline is the drastic swings in oil prices. The second quarter saw supply-demand imbalances, geopolitical events and shifts in energy policy all contributing to a roller-coaster ride in the oil market.

Global Economic Uncertainties: The ongoing COVID-19 pandemic is maintaining economic uncertainties around the world, leading to lower energy consumption and affecting oil demand. As major economies recover at different paces, Saudi Aramco faces the challenge of accurately forecasting future demand.

Geopolitical tensions: Tensions in oil-producing regions can significantly affect oil prices and, consequently, Saudi Aramco's profitability. Regional conflicts and geopolitical standoffs can disrupt supply chains and affect investor confidence in the oil industry.

Implications for Saudi Aramco and the oil industry:

Saudi Aramco's Q2 earnings decline has broader implications for both the company and the global oil industry:Revenue Diversification: To mitigate the risk of over-reliance on oil revenue, Saudi Aramco may step up efforts to diversify its revenue streams. Investments in renewable energy and petrochemicals could be part of their long-term strategy to remain resilient in a changing energy environment.

Capital Expenditure Adjustments: Lower profits may lead to a revision of capital expenditure plans. Projects previously considered viable may now require re-evaluation to ensure financial prudence in a lower price environment.

Global energy markets: Since Saudi Aramco is a key player in the oil industry, its profit decline could send signals to other oil-producing countries and influence their production and pricing decisions. This, in turn, can shape the dynamics of the global energy market.

Saudi Aramco's 38% drop in Q2 profits due to lower oil prices underscores the delicate balance the company must maintain in the face of evolving energy dynamics. As oil prices continue to fluctuate, it is imperative for Saudi Aramco to embrace diversification, adapt to global energy trends and implement strategic measures to ensure its financial resilience. Additionally, this scenario serves as a critical reminder of the broader implications that oil industry challenges can have on the global economy.