Saudi Aramco will cut capital spending as it prepares for a prolonged period of lower crude prices after its largest shareholder launched an oil price war. Saudi Arabia’s decision to flood the market with additional supplies after Russia declined to participate in co-ordinated output cuts will have an outsized effect on the kingdom’s energy company.
According to Financial Times, Saudi Aramco, which has seen its shares fall 11 per cent below its float price of SR32 in December, said on Sunday that it would cut spending by as much as 23 per cent in response to falling oil prices. Yet, as part of the oil price war, Saudi Aramco has been told to increase its maximum production capacity to 13m barrels a day, up from the current level of 12m b/d, which would require billions of dollars to overhaul how the company manages, processes and exports its oil. It is still unclear how the company will be able to cut spending and raise production capacity from its current output levels and whether the government will allocate additional funds for this expansion. The Economist Magazine subscription in Pakistan
The spending cut came after Saudi Aramco took a big financial hit in 2019. Net income was down 21 per cent year on year to $88.2bn, it said, after crude prices fell due to supplies from the US and elsewhere outpaced cuts from Opec and its allies. It also suffered from lower chemicals and refining margins.
After one of the largest one-day falls on Monday, Brent crude had dropped to $34 a barrel by Friday, down from roughly $64 a barrel when the company listed its shares.
“The recent Covid-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape,” said Amin Nasser, Saudi Aramco’s chief executive. “We will ensure that we maintain the strength of our operations and our finances.”
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