**Saudi Aramco Profits Plunge 38%**
Saudi Aramco, the third most valuable company in the world, has seen a significant decline in profits in the second quarter of the year due to cooling energy prices. This drop comes after Aramco recorded a record-breaking $161 billion profit in 2022, the highest ever recorded by an energy firm.
**Reasons Behind Declining Profits**
Aramco reported a net profit of 113 billion riyals ($30 billion) for the three months ending in June, a decrease of almost 40% compared to the previous year. The company attributes this decline to lower crude oil prices and weaker margins in refining and chemicals.
**Dividends for Shareholders**
Despite the decline in profits, Aramco has announced that it will pay a dividend of $19.5 billion to shareholders for the second quarter of the year, a slight increase from the $18.8 billion payout in the same period last year. Additionally, shareholders will receive $19.5 billion in dividends for the first quarter of the year, bringing the total payout for the first half of 2023 to $39 billion, up from $37.5 billion in the previous year.
**Introduction of Performance-Based Dividends**
Starting from the third quarter, Aramco plans to introduce performance-based dividends. These dividends will be paid for six consecutive quarters and will begin with a $9.87 billion payout. The company aims to make these dividend payouts sustainable and progressive.
The Saudi government is the largest shareholder of Aramco, owning over 90% of the company. The sovereign Public Investment Fund and its subsidiary Sanabil hold an additional 8% of the firm’s shares.
**Turbulent Times for Energy Giants**
Aramco is not the only energy giant to face declining profits while increasing dividends. Shell and BP, two other major players in the industry, have also followed this trend. These companies have been impacted by the energy crisis that ensued after Russia’s invasion of Ukraine in February 2022. The energy market, already facing undersupply, experienced further disruptions due to economic sanctions and a ban on imports of Russian oil.
**Recovering Oil Prices**
Brent crude oil prices, a benchmark for oil trading worldwide, have shown a slight decline, trading just below $85 a barrel. However, this is an improvement from the price drop below $72 a barrel earlier this year. The market projects a more resilient oil market in the future as central banks complete their rate hike campaigns and the global economy continues to recover.
**Positive Outlook for Aramco**
Quincy Krosby, the chief global strategist for LPL Financial, believes that Aramco’s projection of a resilient oil market is well-founded. As central banks conclude their rate hikes and the dollar weakens, the global economic backdrop is expected to support higher oil prices. With tighter supplies and a recovering global economy, oil prices are anticipated to increase. Saudi Arabia, as the de facto head of OPEC+, has indicated its intention to stabilize and boost prices towards $90 a barrel by adjusting production.
In conclusion, Saudi Aramco has faced a decline in profits due to cooling energy prices. However, the company remains committed to providing dividends to its shareholders, introducing performance-based dividends to ensure sustainability. The turbulent times faced by energy giants have impacted their financial performance, but recovering oil prices and a more resilient market outlook offer hope for the future.