Aramco rides post-Covid rebound to record high

Saudi Aramco shares rose to a record high as its chief executive officer said oil demand continues to rebound from the coronavirus pandemic, including in the company's main market of Asia.

"With the global recovery we're seeing today, there is more demand for products and we see that from different enclaves, especially in Asia," chief executive Amin Nasser said during a speech in Riyadh, Saudi Arabia's capital. "There's some pick up in the rest of the world."

Crude prices have surged around 20 per cent this year to more than $90 (€79.50) a barrel, with consumption increasing and many major producers struggling to boost supply. Several traders believe prices will soon hit $100.

The stock gained as much as 6.6 per cent to 40.20 Saudi riyals, before paring gains to 4.1 per cent as of close in Riyadh. That boosted its market valuation by $83 billion to $2.1 trillion, behind only Apple and Microsoft.

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Crude's rise is contributing to an acceleration in inflation globally and putting pressure on central banks to increase interest rates. US president Joe Biden, keen to ease cost-of-living pressures for Americans before mid-term elections in November, has in recent months called on producers to increase output faster.

Investment

Mr Nasser said part of the problem is a lack of investment in the oil sector. Many energy companies are cutting back on new developments as governments and investors push them to lower carbon emissions. Saudi Arabia and neighboring United Arab Emirates are among the few producers still spending billions of dollars to increase their capacity.

Aramco is “on track” to raise its crude-production capacity to 13 million barrels a day from 12 million by 2027, the chief executive said separately to reporters. The company will give more detail when it announces its results for the last quarter of 2021.

“There’s not adequate investment” around the world to “sustain growth in demand in the mid to short term,” Mr Nasser said. Global consumption will probably reach pre-pandemic levels – or around 100 million barrels a day – during the first half of this year, he said.

The company has "huge interest" in investing in China, the world's biggest crude importer, according to Mr Nasser. Aramco has revived discussions to build a multibillion dollar refining and petrochemicals complex in the northeast of the country, Bloomberg reported earlier this month.

Aramco shares have risen 10 per cent this year, roughly in line with Saudi Arabia’s benchmark Tadawul All Share Index. The Tadawul is the world’s sixth-best performing gauge this year in dollar terms and is hovering at its highest level since 2006.

Dividends

The energy giant will probably "continue reaping the dividends of high oil prices," said Faisal Hasan, chief investment officer at Al Mal Capital. He expects crude prices to be bolstered by rising consumption as the pandemic recedes and geopolitical tension over Ukraine.

Still, as Aramco climbs, its dividend yield comes under pressure. It dropped to 3.6 per cent on Monday – lower than peers such as Exxon Mobil and BP. Analysts have previously said Aramco will need to boost its shareholder payouts, currently set at $75 billion annually, to attract more foreign equity investors.

“I will not be surprised if the company increases its dividends this year,” Mr Hasan said.

The gains in the stock come as the government, which owns about 98 per cent of the company either directly or through its sovereign wealth fund, considers a new share sale. Saudi Arabia raised almost $30 billion from Aramco’s initial public offering in late 2019. – Bloomberg