Despite Saudi Arabia cut the production of crude oil two times last year to control the market and keep prices high, quarterly profits of the Kingdom’s oil sales show a drop by nearly 40 percent in the first half of 2023.
Saudi Arabia’s Aramco oil refinery, which is by far the world’s biggest oil firm, announced this Monday that due to the decrease in oil prices since the beginning of 2023, the marginal profit of the giant oil company dropped by nearly 40 percent in the first half of 2023.
The 90 percent-state-owned company said in a statement to the market that profits were $30.1bn for the months of April to June, which was down by 38 percent from $48.4bn in the second quarter of last year.
Aramco also noted in the statement that it would pay a base dividend of just over $19.51bn for the second quarter, and announced it was handing out an additional performance-linked payout of $9.87bn for the third quarter.
Aramco’s CEO Amin Nasser said in a separate statement that with a recovery anticipated in the broader global economy, along “with increased activity in the aviation sector, ongoing investments in energy projects will be necessary to safeguard energy security”.
The kingdom’s daily production is now approximately nine million bpd, far below its reported daily capacity of 12 million bpd. Blaming the world’s economic situation, Nasser also said that “the second quarter of 2023 was characterized by continued global economic uncertainty and market volatility,” adding that “this obviously affected energy prices”.
Bin Salman’s wrong oil policies led to Aramco’s downfall in profit
It is true to say that the decline in Aramco’s profits reflects a drop in oil prices this year after they experienced a huge surge following Russia’s invasion of Ukraine in February. Back then, the oil price peaked at more than $130 dollars per barrel.
The jump helped Saudi Aramco to gain an unprecedented amount $161bn profit last year, the largest recorded by an oil and gas firm ever in the world.
However, the decrease in oil prices itself, which led to a huge loss of profit for Aramco, was resulted by wrong and politically-motivated decision made by Saudi young Crown Prince Mohammed bin Salman.
To read between the lines, bin Salman decided to cut the Kingdom’s oil production in the OPEC by 500,000barrels a day (bpd) in April as part of a coordinated action alongside other major oil exporting economies to cut supply by more than 1m bpd in order to keep prices high.
In addition to economic motives, Saudi Arabia did so as a political revenge against the Biden administration for its anti-Saudi rhetoric.
It was back in 2020 and during presidential campaign trail in US that then-presidential candidate Joe Biden strongly rebuked Saudi Arabia for its human rights violations and said if elected, his administration would turn this repressive kingdom, a longtime U.S. partner of convenience, into a global “pariah.”
Less than two months later in June, the Saudi energy ministry announced a further voluntary cut of 1m bpd, which took effect in July and has been extended through September.
The actions helped push up the price of Brent crude to around $85 per barrel for a while, up from $75 at the end of June. However, prices remain far below the high of $127 per barrel seen last year after Russia’s invasion of Ukraine.
This is while analysts believe to balance its budget, the kingdom needs oil to be at least $90 per barrel. Last but not least, Saudi Arabia’s continued reliance on oil revenues shows that bin Salman’s efforts to make the Kingdom less dependent on fossil fuels still remains a pipedream.