What’s going on?

After a tough time, oil producer performance is rising again. The world’s largest, Saudi Aramco, is the latest to report much-improved profit.

What does this mean?

• As major economies reopen, commodity prices have surged: oil is up more than 30% so far in 2021, which is much more optimistic than the deep price fall in early 2020.
• Aramco’s earnings in Q2/2021 were actually even better than expected, almost quadrupling yoy. But instead of using these extra profits to raise dividends or buy back shares like some peerss, Aramco plans to reinvest these in expanding oil production further – even as other energy firms scale back their own output.

Why should I care?

The bigger picture: Mother Nature is calling

• Aramco’s rivals in Europe and America are under pressure from governments and investors to cut oil production and accelerate their shift toward renewable energy. That mission became even more urgent after a landmark United Nations report absent of drastic action for climate change.
• However, Saudi Aramco still appears to expect oil to remain a part of the world’s energy mix in the future.

Zooming in: Heading down a one-way street?

• Road transport is one of the largest sources of greenhouse gas emissions, but 2/3 of global car sales are expected to be electric by 2040 (according to Bloomberg New Energy Finance). It’s reckoned that oil demand from fossil fuel road vehicles will peak in 2027 and rapidly decline thereafter. This might mean Aramco’s present plans to increase production end up misplaced.

Content source: Finimize (2021) The Aramcomeback Kid. Available at: https://www.finimize.com/wp/news/the-aramcomeback-kid/ [Accessed on Aug 11, 2021]