Aramco able to keep $75bn dividend promise, Bank of America says
Saudi Aramco, the world’s biggest oil-exporting company, is “well placed” to raise its dividend guidance beyond $75 billion as oil prices are expected to surpass $70 a barrel this year, Bank of America said yesterday.
Aramco assured shareholders that it would make the world’s largest dividend payout despite the coronavirus pandemic. The company’s full-year results are expected on March 21.
Aramco’s third-quarter profit for 2020 fell by 44.6 per cent due to lower crude prices, reduced volumes and weaker refining and chemical margins.
However, robust action by Opec+, which Saudi Arabia leads alongside Russia, has since pushed the price of Brent to about $70 a barrel.
The benchmark, under which two thirds of the world’s oil is traded, gained 3.93 per cent to settle at $69.36 a barrel on Friday after Opec+ decided to extend its production cuts until April 30.
West Texas Intermediate, which tracks US crude grades, closed the trading week 3.54 per cent higher at $66.09 a barrel.
Opec+ deferred a planned output increase of 2 million barrels per day for January and will continue to withhold 7.2 million bpd, or 7 per cent of global oil supplies, from the market.
Saudi Arabia, which surprised markets with an extraordinary voluntary commitment to withhold 1 million bpd in February, will extend the output cut to April 30.
The decision caused oil prices to rise by more than 5 per cent on Thursday.
Brent and WTI are riding a persistent super cycle of commodities and are about 36 per cent higher than they were when the year began.
BofA said having oil trade between $60 and $75 was favourable to Aramco’s free cash flow and dividend policy.
“We leave our price outlook on Aramco unchanged at 35 riyals a share and leave Aramco on ‘neutral’ as we believe that, at the current valuation, higher oil prices are largely priced in,” the lender said.
“We do believe, however, that in a bullish oil demand recovery scenario, Aramco is uniquely placed to [raise its] volumes without a corresponding increase in capital expenditure.”
Opec+ is in charge of the bulk of global spare capacity and analysts are raising their oil price expectations as the alliance keeps a tight lid on supply.
“We would expect then for production to continue to be restrained even if prices pushed considerably higher,” said Emirates NBD yesterday.
The Dubai-based bank assumed an average price of $67.5 a barrel for Brent, with the benchmark expected to average $70 in the second quarter.
Abu Dhabi Commercial Bank raised its Brent forecast to $65.5 a barrel for this year and $67 a barrel for 2022.
“The higher oil price outlook is very positive for the GCC economies, both in terms of fundamentals and sentiment,” said ADCB chief economist Monica Malik yesterday.