Saudi Arabia’s oil giant Aramco said it will distribute dividends of $18.75 billion for the second quarter despite taking a severe hit to its earnings from the oil price crash and the coronavirus pandemic that savaged demand for oil products.

The company said it had earned a net $6.6 billion during the second quarter, down from $24.7 billion a year earlier. Free cash flow stood at $6.1 billion at the end of June this year, versus $20.6 billion a year earlier. Given this discrepancy between available cash and the size of the dividend, Aramco may have to look for money elsewhere to cover its dividend commitment.

“We will continue to pursue our long-term growth and diversification strategy to capture unrealized and additional value from every hydrocarbon molecule we produce – driving global commerce and enhancing people’s lives,” Aramco’s chief executive Amin Nasser said in comments on the second-quarter report.

Saudi Arabia shouldered the biggest portion of the OPEC+ production cuts aimed at propping up oil prices after the Kingdom decided in March to teach Russia a lesson by turning up the taps with notoriously bad timing as it turned out. The cuts worked to an extent, and Aramco could afford to raise its official selling prices for oil after China began to emerge from its lockdown and demand for oil picked up.

Yet the OPEC+ cuts did nowhere near enough to boost prices to their pre-crisis levels, which, to be fair, were already lower than peaks reached last year. The company’s second-quarter results reflected this failure of the producer cartel. Now, Aramco may need to cut the price of its oil once again. The recovery of demand that oil producers praised earlier this year has proved to be more uneven than they might have liked, and refining margins are still tight, so Aramco would need to sell oil more cheaply to keep its market share in the key Asian markets.

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By Irina Slav for Oilprice.com

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