Saudi Aramco Faces 38% Drop in Q2 Profit Amidst Plummeting Oil PricesπŸ›’οΈ



Key Points πŸ“Œ

  • Saudi Aramco, the state-owned oil giant, reports a significant 38% decline in second-quarter net profit due to falling hydrocarbon prices.
  • Despite the decline, Aramco’s second-quarter profit slightly surpasses analysts’ expectations, indicating some resilience in financial performance.
  • Industry expert Carole Nakhle notes the decline aligns with broader industry patterns, reflecting challenges posed by fluctuating hydrocarbon prices.
  • The decline is attributed to reduced crude oil prices and weakening margins in refining and chemicals sectors.
  • Aramco increases dividend payouts, reaffirming first-quarter base dividend and declaring a second-quarter dividend. Performance-linked dividends planned over six quarters.
  • CEO Amin Nasser remains optimistic, citing resilient global demand, especially in aviation sector’s ongoing recovery.
  • Saudi Arabia’s production cuts, in line with OPEC+ efforts, contribute to market stability despite putting pressure on oil prices.
  • Goldman Sachs predicts Brent prices potentially reaching $86 per barrel by December and even $93 per barrel next year.
  • Saudi Aramco’s financial performance highlights challenges of plummeting hydrocarbon prices, industry-wide impact of market fluctuations, and ongoing pursuit of stability and profitability.

Saudi Aramco 🌍

In a recent financial disclosure, Saudi Aramco, the state-owned oil giant, reported a significant 38% decline in its second-quarter net profit. This downward trend, attributed to the falling hydrocarbon prices, marks a substantial departure from the company’s previous year’s earnings. The decline, while notable, is in line with industry-wide trends as the sector grapples with a volatile energy market.

The Scale of Saudi AramcoIf you stopped most people in the street in the West, they would not know of Saudi Aramco.In Q2 2022, it reported more net profit than Microsoft, Apple, Meta, and Tesla combined.

The Numbers πŸ“Š

Aramco’s financials for the second quarter painted a less optimistic picture than in years past. The company’s net profit for the quarter amounted to 112.81 billion riyal ($30.07 billion), a considerable drop from the same period in the previous year. The sharp decline, nearly 40% from the preceding year’s $48.4 billion, can be attributed primarily to the falling prices of hydrocarbons.


Slight Beat in Expectations πŸ“ˆ

Interestingly, despite the stark decline, Aramco’s second-quarter profit slightly surpassed analysts’ expectations, hovering around $29.8 billion, as per a poll conducted by the company. This might indicate some resilience within the company’s financial performance, aligning somewhat with industry trends.

Q2 2023 interim report


Industry Insights πŸ•΅οΈ

Carole Nakhle of Crystol Energy acknowledged that while this quarter’s results were not as astounding as the previous year’s, they are indeed aligned with broader industry patterns. The decline, while substantial, doesn’t necessarily signal a failing financial position. Industry trends show that even the most robust players are facing challenges due to fluctuating hydrocarbon prices.

Saudi Aramco reported Q2 profits of $30.1B down 38% YoY - Reuters

Factors at Play πŸ”

The company highlighted that the significant decline was largely due to the reduced crude oil prices and the weakening margins in the refining and chemicals sectors. These factors, coupled with economic headwinds, have contributed to the less-than-stellar performance.


Dividend Strategy πŸ’°

Remarkably, Aramco is following the footsteps of its industry peers by increasing dividend payouts despite the decline in profitability. The company not only reaffirmed its first-quarter base dividend of $19.5 billion but also declared a second-quarter dividend of the same amount, set to be distributed in the third quarter. Additionally, Aramco unveiled plans to initiate performance-linked dividends over a span of six quarters, commencing with a $9.9 billion distribution in the third quarter.


Forward-Looking Optimism πŸ‘€

Aramco’s CEO, Amin Nasser, expressed optimism about the future, stating that despite economic challenges, there are signs of resilient global demand, particularly in the aviation sector. This optimism might stem from an ongoing recovery in the aviation industry, which could potentially mitigate some of the challenges faced by the company.


OPEC+ Dynamics β›½

Nakhle pointed out that the decline in Aramco’s profitability should also be viewed in the context of production cuts. Saudi Arabia’s decision to curtail production by 1 million barrels per day, effective from June, has been extended into subsequent months. This reduction adds to the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, who are collectively aiming for a decline of 1.66 million barrels per day until the end of 2024. These production cuts are aimed at stabilizing the market and maintaining oil prices.

Biggest oil and gas companies by market cap.

Price Pressures πŸ’₯

Nakhle observed that the production cuts have put substantial pressure on oil prices. However, these efforts align with OPEC+’s goal of achieving market stability. She identified a price point of $80USD per barrel as highly desirable for Saudi Arabia, which indicates the extent to which the country is invested in maintaining a stable market for its primary export.

Saudi Aramco Chart: Technical Analysis

Price Predictions πŸ“ˆ

Despite the challenges, some experts remain optimistic about oil prices. Prominent forecaster Goldman Sachs anticipates that Brent prices could reach as high as $86 per barrel by December and even $93 per barrel by the following year. This prediction is founded on expectations of robust demand and continued supply deficits within the OPEC+ framework.


Conclusion 🏁

In conclusion, Saudi Aramco’s recent financial performance reflects the challenges posed by plummeting hydrocarbon prices. The 38% decline in net profit for the second quarter underscores the industry-wide impact of these market fluctuations. However, the company’s efforts to boost dividends and its CEO’s optimism about demand recovery hint at a possible turnaround in the future. Amidst these shifts, industry players continue to navigate an ever-changing landscape in pursuit of stability and profitability.


Disclaimer: The information presented is based on available data and market trends as of the specified date. Individual circumstances may vary.

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