Aramco well placed for timid oil recovery

Aramco well placed for timid oil recovery

Saudi Aramco is the investment of choice for those who think the oil market is a glass half full. True, U.S. crude futures temporarily turned negative last month, and even after something of a recovery Brent still trades at just $30 a barrel. Even so, the Saudi Arabian oil giant’s first-quarter results suggest at least some players are well prepared.

Chief Executive Amin Nasser is caught in a storm, but he’s at least in a big boat. While Aramco’s earnings dropped by one-quarter year-on-year in the three months ending March 31, the company at least has more cash than debt. If he needed to, Nasser could borrow the entirety of this year’s intended $75 billion dividend and still keep net debt below 20% of total capital, well below UK rival BP’s 36%.

Of course, Aramco’s free cash flow in the second quarter will be a lot lower than the first quarter’s $15 billion, because of falling prices. So will production: the 9.8 million barrels of daily output will fall in June to 7.5 million, after Saudi said it would voluntarily cut more than its original share of a 9.7 million barrels daily reduction by the Organization of the Petroleum Exporting Countries.

The market, though, now looks less dire than it did. Recently, with daily supply outstripping coronavirus-hit demand by 20 million barrels, oil producers faced a seemingly impossible balancing act. The doomsday scenario was that the glut persisted, storage filled up, and producers were forced to shut down their output – potentially sending many out of business.