Saudi Aramco, the world’s largest oil company, has announced that it made a profit of $161 billion last year, a huge figure for the corporation and its main shareholder, the Saudi government.
Higher oil prices and a production deal with Russia helped boost Aramco’s earnings, especially after the Russian invasion of Ukraine rattled global energy markets.
Here’s a closer look at what’s behind Aramco’s earnings and what it signals.
broke aramco’s record profits
Aramco, which produces all of Saudi Arabia’s oil and gas, saw earnings in 2022 jump nearly 47% from last year’s $110 billion profit.
This is partly because as COVID-19 vaccines become increasingly available around the world, countries have begun to lift coronavirus restrictions and resume business as usual. This helped increase demand for oil as people started going back to work, traveling more and spending more.
Aramco CEO Amin Nasser said in the company’s full-year earnings statement that a record $161.1 billion profit in 2022 was the result of stronger crude prices, higher volumes sold and better margins for refined products.
The company said it expects to produce an average of about 13.6 million barrels of oil per day in 2022. Its biggest customer is China, where demand for Saudi oil is expected to rise in coming years, although sluggish demand late last year helped bring the oil up. Somewhat down the high oil prices. Among the big deals Aramco struck last year was an investment in the development of a major integrated refinery and petrochemical complex in northeast China.
Aramco, which only trades a tiny fraction of its shares on the Saudi Stock Exchange, said it would raise its dividend to shareholders by 4% to $19.5 billion. The largest shareholder of the company is the Saudi government.
Saudi Arabia’s ambitious projects driven by oil revenue
Saudi Arabia is trying to move away from dependence on oil exports by creating new sources of revenue from sectors such as mining and tourism. Despite these diversification efforts, oil exports continue to support the state’s economic development.
What this means for Saudi Crown Prince Mohammed is that when oil prices are high, so are Aramco’s earnings. And that means more money could be pumped into the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund led by the crown prince.
The PIF oversees projects that include a futuristic metropolis in the northwest of the kingdom called NEOM, a Maldivian-like tourist destination along the Red Sea where major hotel chains are building resorts and hotels in the capital Riyadh. There is a new city for the city, consisting largely of cube-shaped structures. Its centerpiece.
When oil prices are high, the PIF can also easily increase its stake in companies around the world, which in turn gives Saudi Arabia more influence and clout. PIF has already bought significant stakes in companies such as Nintendo, electric vehicle maker Lucid Motors, concert operator Live Nation and the company that operates Carnival Cruise Line. The PIF has helped boost Saudi Arabia’s reputation with large spending in sports, including the purchase of LIV Golf, a rival of the PGA Tour, and Newcastle United, a Premier League soccer club in the UK.
These investments and Prince Mohammed’s mega projects are aimed at generating new sources of revenue for the kingdom and ultimately creating millions of jobs for young Saudis entering the workforce.
Global volatility is fueling higher prices
Russia’s invasion of Ukraine in February last year sent commodity prices skyrocketing, especially oil, which jumped on the back of war uncertainty. The price of benchmark Brent crude is currently trading at more than $80 a barrel, but it rose from its highest point last year to more than $130.
Saudi Arabia also benefits from an oil deal with Russia. Saudi Arabia is the largest producer of the OPEC oil cartel and has maintained an alliance with non-OPEC oil producers led by Russia. The so-called OPEC+ pact has capped oil production since 2019 to keep energy prices buoyant.
The OPEC+ deal has helped support Russia’s bottom line. It also offsets some of the economic consequences that Western sanctions have had on Russia in response to its invasion of Ukraine. The Biden administration last year tried to pressure the Saudis to increase production and global energy supply.
Climate change efforts affected by oil demand
As the world increasingly looks to cleaner forms of energy, major fossil fuel producers such as Saudi Arabia and the United Arab Emirates are increasing their investment in new low-carbon technologies, calling for continued investment in oil and gas. The position is at odds with environmentalists and scientists at the United Nations, who say the world must rapidly phase out fossil fuels to prevent catastrophic global warming levels.
Aramco CEO Amin said the company is “not only focused on expanding oil, gas and chemicals production, but also making investments with the potential to achieve additional emissions reductions.”
He argued in the company’s earnings report that oil and gas will remain essential to powering economies for the foreseeable future. He said the risks of under-investment in the sector are “real” which could lead to higher energy prices for consumers around the world.
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