Oil drives Aramco to record $2tr valuation

It ranks third behind Microsoft and Apple as the world’s most valuable company

Saudi Arabia’s oil giant Aramco hit a market cap of $2 trillion during intraday trade yesterday before closing at $1.99 trillion, the first time it reached this peak in trading since December 2019, days after its debut on the Saudi stock exchange.

Aramco now ranks third behind Microsoft and Apple as the world’s most valuable company, far exceeding the combined value of some of the world’s biggest oil companies.

The rally for Aramco came as Brent crude prices climbed to around $83 a barrel, the highest in seven years. Demand for oil is forecast to hit 99 million barrels per day by the end of the year, and a little over 100 million per day next year.

Despite fluctuations in annual earnings, Aramco has stuck to its promise to pay an annual dividend of $75 billion until 2024 to shareholders

Opec+ said on Monday that it is maintaining a gradual approach to restoring production levels that had been slashed during the pandemic, agreeing to add only 400,000 barrels per day in November.

As oil prices push above $80 a barrel and fears over the global energy crunch grow, some observers say the Opec+ coalition isn’t doing enough to steady the market.

For the organisation’s top official, Secretary-General Mohammad Barkindo, the blame lies elsewhere. Turmoil spreading from natural gas markets shows that the energy transition is impeding vital investment in supply. “The energy transition is not being handled properly,” Barkindo said at the Energy Intelligence Forum on Wednesday. “And hence we are beginning to see the fallout.”

Crude prices rocketed on Monday after the Organisation of Petroleum Exporting Countries and its partners chose to continue increasing supplies at a modest pace, even as world oil inventories diminish sharply.

But the volatility isn’t the fault of Opec, Barkindo insisted. The group’s decision this week to increase supplies gradually — like last year’s agreement to cut output during the pandemic — shows it’s committed to a sustainable market balance, he says.

‘Hysteria’

The fundamental problem in the energy sector lies with the ‘hysteria’ that has gripped thinking on the move away from fossil fuels, shrinking much-needed investment — even in developing countries, he says. “We call on the leading polluters, the leader emitters” to pause and work on sustainable solutions when they gather for the next round of climate talks in Glasgow next month, he said.

Opec+’s decision on Monday to stick with a plan to raise oil output modestly and gradually, despite prices surging to multiyear highs, was partly driven by concern that demand and prices could weaken, sources close to the group said.

Opec+ has faced calls this year from consumers, such as the US and India, for extra supply. The group, sources said, was considering a larger boost of 800,000 bpd ahead of Monday’s meeting.

But by Monday morning, the signals from Opec+ sources ahead of their virtual meeting later that day had changed. “Based on past lessons, Opec is more cautious because any hasty decision can lead to a sharp drop in oil prices,” said an Opec+ source, explaining the reasons not to increase output further.

Opec+ is mindful, sources say, of the prospect that prices can reverse gains just as quickly. This happened in 2018 when Brent crude fell from above $85 in October to below $50 by the end of the year. “The oil market is still fragile and there is no guarantee of stable prices,” the Opec+ source said.

Covid concern

Another Opec+ source said the group had faced pressure to ramp up production faster, but added: “We are scared of the fourth wave of corona, no one wants to make any big moves.” Concern was also expressed by some members that a further boost in output could upset next year’s market balance — which Opec+ already sees as surplus.