A collapse of global oil prices that was further accentuated by the novel coronavirus pandemic has forced a 25 per cent drop in the profits of Saudi Arabia’s state-owned oil company, Saudi Aramco.
For the first quarter of the year, net profits of 62.48bn riyals ($16.64bn) was reported by the most profitable company of the world which was significantly lower than the net profit of 83.29bn riyals in the same period a year earlier. There has been about a two third fall in the global price of oil globally within the first quarter itself.
In April, the global oil prices dropped to 21-year lows before a deal to limit production of oil was struck by the world’s largest oil-producing countries, led by Saudi Arabia. The production cut is set to be implemented from May and it is hoped that the supply side glut in the global oil industry will be addressed with this cut which will help to prop up oil prices.
The cut, which has been described to be the most ambitious oil supply deal ever engineered by the OPEC oil cartel, will reduce the total oil output and supply to the global oil market by 9.7m barrels a day. Demand for oil has tumbled very low because of transportation and movement curbs imposed by various governments all across the world in an effort to try and curb the spread of Covid-19, the disease that is caused by the novel coronavirus.
“Looking ahead to the remainder of 2020, we expect the impact of the Covid-19 pandemic on global energy demand and oil prices to weigh on our earnings,” said Aramco’s CEO, Amin Nasser.
Aramco is expected to be severely hit by the oil market crisis. The Saudi government has directed the oil giant to cut production to help support global oil prices. This will result in lower earning in dollars for the company against every barrel of oil it produces.
“Longer term we remain confident that demand for energy will rebound as global economies recover,” Nasser said.
Global demand for oil would fall by a record 9m barrels of oil a day, warned the International Energy Agency because of the pandemic. That fall in demand could simply wipe off growth in oil demand over the last one decade. According to the more pessimistic predictions, the demand for oil might never recover to the record levels that were seen in 2019.
Further cuts of production of oil by 1m barrels of oil a day from next month was announced by Saudi Arabia on Monday. That would take being down the total production of the country to 4.8m barrels a day. The Middle Eastern country hopes that this measure could shore up oil prices from the current levels of about $30 a barrel.
Billions of dollars from Aramco’s market value have also been wiped out because of the collapse in crude prices, within just months of the oil producing giant had launched it controversial initial public offering for a portion of its ownership late last year. The stock price of the company has dropped to 31.25 riyals as on Tuesday compared to 32 riyals a share in December last year.
(Adapted from TheGuardian.com)