On Monday, Saudi Aramco reported earnings of $30.08 billion for the second quarter, a significant decrease from the same period last year, when prices soared due to Russia’s invasion of Ukraine.
The 38 percent year-over-year decline “mainly reflected the impact of lower crude oil prices and weakening refining and chemicals margins,” the company said in a statement released on the Saudi stock exchange.
The decline followed a 19.25 percent decline in first-quarter net income.
CEO Amin Nasser stated, “Our strong results reflect our resilience and adaptability throughout market cycles.”
Nasser, in announcing the timing of an additional dividend, stated, “We continue to demonstrate our long-standing ability to meet the needs of global customers with high levels of dependability.”
“We intend to begin distributing our first performance-based dividend to our shareholders in the third quarter,” he said.
In April, the world’s largest crude exporter, Saudi Arabia, announced a cut of 500,000 barrels per day as part of a coordinated effort with other oil powers to reduce supply by more than one million barrels per day in an effort to buoy up prices.
In June, the Saudi energy ministry announced a voluntary reduction of one million barrels per day, which went into effect in July and was extended through September.
The kingdom’s current daily production is approximately nine million barrels per day, which is far below its reported daily capacity of 12 million barrels per day.
Aramco is the primary revenue source for Crown Prince Mohammed bin Salman’s Vision 2030 economic and social reform program, which seeks to transition the economy away from fossil fuels.
According to analysts, the crude price needs to be around $80 per barrel for the kingdom to balance its budget.
Prices are currently above this threshold, indicating that recent supply reductions are beginning to have the desired effect.
West Texas Intermediate crude for September delivery traded at $82.54 per barrel on Monday, while Brent crude futures were just below $86 per barrel.
Following Russia’s invasion of Ukraine in February 2022, the price of a barrel of crude surpassed $130.
According to Herman Wang, associate director for oil news at S&P Global Commodity Insights, the cuts “demonstrate the lengths to which the kingdom will go to defend oil prices, as a falling market for its lifeblood commodity threatens its ambitious economic diversification efforts.”
Aramco is investing to increase national production capacity to 13 million barrels per day by 2027.
“It’s a costly proposition for Aramco to hold production capacity offline in the name of OPEC+ cuts, but the hope is that the sacrifice will pay off in higher prices in the long run,” said Wang, referring to the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and their 10 allies led by Russia.
Last year, Aramco reported unprecedented profits of $161,1 billion, allowing Saudi Arabia to post its first annual budget surplus in nearly a decade.
However, those “phenomenal figures were driven by a very specific set of geopolitical factors, and Saudi Arabia’s leadership could not have based Vision 2030 spending on such outcomes,” according to Jamie Ingram, senior editor of the Middle East Economic Survey (MEES).
“Of course, officials would prefer higher revenues, but Saudi Arabia still has very low debt levels and substantial reserves,” the expert said.
Saudi Arabia controls 90% of Aramco’s outstanding shares.
In December of 2019, the company listed 1.7% of its shares on the Saudi bourse, raising $29.4 billion in the largest initial public offering in history.
Saudi Arabia announced in mid-April that it was transferring nearly $80 billion worth of Aramco shares to Sanabil Investments, a firm controlled by the kingdom’s Public Investment Fund (PIF), one of the world’s largest sovereign wealth funds with over $620 billion in assets.
Four percent of Aramco shares were transferred directly to the PIF last year.