‘Oil demand picking up as countries ease lockdown’

Saudi Aramco’s Chief Executive Amin Nasser said on Sunday that he sees oil demand recovering in Asia as economies gradually open up after the easing of coronavirus lockdowns.

“Look at China, their gasoline and diesel demand is almost at pre-COVID 19 levels. We are seeing that Asia is picking up and other markets too,” he told reporters on a conference call after Aramco reported results. “As countries ease the lockdown, we expect the demand to increase.”

The state oil giant has plans to pay $75 billion in dividends this year. All major oil companies have taken a hit in the second quarter as lockdowns to contain the coronavirus limited travel, which reduced oil consumption and sent prices tumbling to levels not seen in nearly two decades.

Aramco, which listed in Riyadh last year in a record $29.4 billion flotation, said the rapid spread of COVID-19 globally had significantly reduced demand for crude oil, natural gas and petroleum products.

Nasser told reporters that he had seen a partial recovery in the energy market and a pick up in demand as economies gradually open after the easing of coronavirus lockdowns.

“As countries ease the lockdown, we expect the demand to increase”, Nasser said. Aramco was committed to its 2020 dividend. “We intend to pay the $75 billion, subject to board approval and market conditions,” he said.

The group’s dividends play a critical role in Saudi Arabia’s economy.

Analysts had expected net profit of 31.3 billion riyals, according to the mean estimate from three analysts, provided by Refinitiv.

“Aramco figures are healthy compared to other global peers,” Mazen Al-Sudairi, head of research at Al Rajhi Capital, said. “This was the worst quarter in the modern history of oil industry, and surviving it with healthy figures points to a very positive outlook.”

Aramco shares were up about 0.4 per cent in trade. The group is currently the world’s second most valuable publicly traded company after Apple.

Aramco said it would pay a dividend of $18.75 billion for the second quarter of this year, in line with plans for a $75 billion dividend for 2020.

BP earlier this month cut its dividend for the first time in a decade after a record second-quarter loss, while Royal Dutch Shell in April cut its dividend for the first time since World War Two.

Aramco’s free cash flow stood at $6.1 billion in the second quarter and $21.1 billion for the first half of 2020, respectively, compared with $20.6 billion and $38.0 billion for the same periods in 2019.

Aramco’s gearing ratio was 20.1 per cent at the end of June, mainly reflecting the deferred consideration for the acquisition of Saudi Basic Industries Corporation and the consolidation of SABIC’s net debt on to Aramco’s balance sheet.

Meanwhile, energy ministers from Gulf Oil producing countries including Saudi Arabia and Iraq held a call on Friday and said they were encouraged by recent signs of improvement in the global economy, stressing the importance of compliance with the OPEC+ cuts.

The ministers from Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Oman and Iraq reviewed developments in the Oil market, the continued recovery in Oil demand and the global economy, according to a joint statement carried by Saudi state news agency SPA and the Iraqi Oil ministry.

“The ministers are very encouraged by the recent signs of improvement in the global economy and commend the efforts taken by countries all over the globe to reopen their economies in a safe way” amid the coronavirus pandemic, the statement said.

They also emphasised the importance of full compliance by all members of the supply reduction pact between the organisation of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+, and for those countries who overproduced before to compensate by cutting deeper in the coming months.

Iraq said on Friday that it would cut production by another 400,000 barrels per day in both August and September to compensate for its overproduction in the past three months.

The rise in infections remains the dominant issue for the fuel demand outlook. Cases in the United States are still rising in a number of states, while India recently reported a record daily jump in infections.  More than 700,000 people have died in the worldwide pandemic. US energy companies cut the number of oil and natural gas rigs this week to a record low for a 14th week. US oil rigs fell by four to 176 this week, their lowest since July 2005, according to data from energy services firm Baker Hughes Co.

Reuters