The oil-price war led by Saudi Arabia and Russia means more pain for Saudi Aramco as producing nations prepare to boost supply/Bloombergby Bloomberg
Saudi Aramco is slashing planned spending this year in the first sign that plunging demand and the oil-price war the Kingdom unleashed are hitting home.
The oil giant said that capital expenditure will be between $25 billion and $30 billion in 2020 and spending plans for next year and beyond are being reviewed. Saudi Aramco giant is lowering that range from the planned $35 billion to $40 billion announced in its initial public offering prospectus and compares with $32.8 billion in 2019.
Amin Nasser, Saudi Aramco’s Chief Executive Officer, said, “We have already taken steps to rationalise our planned 2020 capital spending.”
The oil-price war led by Saudi Arabia and Russia means more pain for Saudi Aramco as producing nations prepare to boost supply. Discounted pricing to markets already reeling from weak demand and crude that lost roughly half its value since the beginning of the year is likely to hit revenue further.
The coronavirus’ blow to oil use has overwhelmed the Organisation of Petroleum Exporting Countries’ (OPEC) initial optimism for demand this year, with analysts now expecting a drop in consumption. The OPEC+ group’s failure on 6 March 2020 to agree on further cuts is only exacerbating a glut as buyers search for storage tanks and vessels.
“Given the impact of the coronavirus pandemic on economic growth and demand, Aramco is adopting “a flexible approach to capital allocation,” said Nasser.
Saudi Arabia, Russia and others intend to boost production once the current accord to lower output expires in March 2020. The Kingdom pledged to supply 25 per cent more oil in April than it produced in February and last week ordered Saudi Aramco to boost output capacity by one million barrels a day.
Saudi Aramco reiterated its plan to pay $75 billion in dividends this year. The company needs to balance its pledge to pay investors with spending on its upstream projects—maintaining oil production and expanding fields—and boosting its global refining and chemical operations—the downstream segment of the business.