Daily Brief: Saudi Aramco’s Profit Quadrupled, But Its Investors Might Be Left Empty-Handed

Daily Brief: Saudi Aramco’s Profit Quadrupled, But Its Investors Might Be Left Empty-Handed

over 2 years ago3 mins

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After a tough year or two, oil producers are rolling in it again – and the world’s largest, Saudi Aramco, became the latest to report much-improved profit over the weekend.

What does this mean?

As major economies reopen, commodity prices have surged: oil is up more than 30% so far this year. That’s provided a welcome windfall for energy companies after the price of the slippery elixir tanked in early 2020 – and Saudi Arabia’s state-owned oil giant, which listed some shares publicly in late 2019, is the latest to join the party.

Income rising

Aramco’s earnings last quarter were actually even better than expected, almost quadrupling compared to the same time last year. But while many oil majors have taken this opportunity to raise dividends and reintroduce share buybacks, Aramco plans to reinvest its bumper profits in expanding oil production further – even as other energy firms scale back their own output.

Capital expenditures
Source: The Wall Street Journal, S&P Capital IQ and companies

Why should I care?

The bigger picture: In through the out door.

Aramco’s European and American rivals are under pressure from governments and investors alike to cut oil production and accelerate their shift toward renewable energy. And that mission became even more urgent on Monday after a landmark United Nations report flashed code red for climate change absent drastic action. Saudi Aramco, however, appears to anticipate oil remaining a part of the world’s energy mix for some time to come.

UN report

Zooming in: Wrong way down a one-way street?

Road transport is one of the largest sources of greenhouse gas emissions – but according to Bloomberg New Energy Finance, at least two thirds of global car sales will be electric by 2040. The research firm reckons that oil demand from fossil fuel road vehicles will peak in 2027 and rapidly decline thereafter – which may mean Aramco’s present plans to increase production end up misplaced.

Keep reading for our next story...

Investment Banks Just Downgraded Their Forecasts For China's Economy

China image

Two of the world’s most influential investment banks downgraded their growth forecasts for China on Monday – and you-know-what was largely to blame.

What does this mean?

America’s Goldman Sachs and JPMorgan Chase lowered their economic expectations for China across both the current quarter and the whole of 2021, following a similar move by Japanese rival Nomura last week. All three banks believe that recent measures to contain the rapidly spreading Delta variant of coronavirus will curb consumer spending – the largest component of China’s economy.

Consumer inflation muted

Goldman now predicts the Chinese economy will grow 8.3% this year compared to 2020, rather than 8.6%. JPMorgan expects 8.9% annual growth – also slightly lower than its previous figure of 9.1%. But Nomura thinks the impact will be more significant: it cut its forecast all the way from 8.9% to 8.2%. Still, at least China should still be on track to meet its official economic growth target of over 6%...

Goldman

Why should I care?

For markets: Holding out for a hero.

It’s not all doom and gloom: China’s central bank is now expected to step in with yet more economy-boosting support. Lower interest rates and/or another cut to the amount of cash local Chinese banks have to keep in reserve should help encourage lending and spending. They could also bolster the country’s stock market, which has suffered recently from intensifying government crackdowns in several sectors.

Zooming out: Do do drugs.

Monday also brought good news in the planet’s ongoing push against the pandemic. German drugmaker BioNTech – pharmaceutical giant Pfizer’s partner in developing one of the world’s most widely used coronavirus vaccines – announced that it had now signed contracts to deliver some 2.2 billion doses of the vaccine this year, as well as over a billion more in 2022. The company accordingly increased its forecast for vaccine-related revenue in 2021 by almost 30%.

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