Saudi Arabia’s Aramco reports lower half-year profits

On Tuesday, Saudi oil giant Aramco reported half-year profits of $56.3 billion, a decrease from the previous year amid concerns about a slowing global economy.

Aramco during the global economic uncertainties

Aramco, officially known as Saudi Arabian Oil Co., posted total revenue of $220.7 billion for the half-year period, up from $218.6 billion the year before. Profits for 2023 were $61.9 billion, nearly $5 billion higher than the previous year. Aramco, the world’s most profitable oil company and top oil exporter, has long been a vital source of income to Saudi Arabia, which is spending vast sums under Crown Prince Mohammed Bin Salman’s Vision 2030 plan to end what he once called the kingdom’s “oil addiction”. Aramco said on Tuesday it expects $124.2 billion in total dividends in 2024, roughly in line with previous guidance of $124.3 billion.

Despite global economic uncertainties, Aramco remains optimistic about the future, anticipating increased demand from the aviation sector and China.
“Global oil demand is strong, reaching a record 103.2 million barrels per day in the first half of 2024, despite some challenges,” Aramco CEO and President Amin H. Nasser stated during a conference call with analysts. “We expect demand to continue growing in the second half of the year.”

Aramco announced it will pay $20.3 billion in dividends for the second quarter, along with a performance-linked dividend of $10.8 billion. The company aims for its total annual dividend to exceed $124 billion.

Aramco produced more than 12 million barrels of oil per day throughout the year, but retains the capacity to increase production by an additional 3 million barrels per day if required, according to Ziad al-Murshed, Aramco’s chief financial officer. In the second quarter, the company sold oil at an average price of approximately $85.70 per barrel, up from $83 per barrel in the first quarter.

Economies in Saudi Arabia

Saudi Arabia, a key player in the OPEC cartel, has joined forces with Russia and other non-OPEC nations to reduce oil production and support global oil prices. On Tuesday, benchmark Brent crude was trading around $77 a barrel following Japan’s Nikkei stock market plunge of 12.4% on Monday, marking its steepest single-day drop since 1987.

This decline is part of a broader global sell-off that began the previous week. A report released on Friday revealed that U.S. employers significantly slowed their hiring in July, exceeding economists' expectations for a weaker-than-expected economic performance. This has intensified concerns that the Federal Reserve’s prolonged high interest rates might be overly restrictive, potentially stifling economic growth and contributing to inflationary pressures.

Saudi Arabia's real gross domestic product (GDP) contracted by 0.4% year-on-year in the second quarter, according to preliminary data from the government’s statistical authority released on Wednesday. This decline was primarily due to an 8.5% drop in oil activities, which has been constraining overall growth for several quarters. The GDP had also decreased by 1.7% in the first quarter of 2024, as ongoing oil production cuts continued to impact the economy of this major oil exporter. Its economy is undergoing a transformation, as it implements reforms to reduce oil dependence, diversify income sources, and enhance competitiveness.

Diversification efforts have been spurred by enhancements in the regulatory and business environment. New laws aimed at fostering entrepreneurship, safeguarding investor rights, and lowering business costs have led to a substantial increase in new investment deals and licenses, which grew by 95% and 267% in 2022, respectively. Additionally, the Saudi Investment Fund (PIF) has been actively deploying capital to stimulate private sector investment.

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