OIL AND GAS

RECOVERING ENERGY DEMAND SUGGESTS BRIGHTER OUTLOOK TO OIL SECTOR

Net income of the Saudi Arabian Oil Company (Aramco) soared 30% in the first quarter of the year after the kingdom’s deft strategy over the past year ensured oil markets remain stable.

Aramco’s net income soared to USD 21.3 billion, compared to USD 16.7 billion during the same period last year, on the back of higher oil prices and a widely improved global economic environment.

Cash flow from operating activities and free cash flow stood at USD 26.5 billion and USD 18.3 billion, respectively, in the first quarter, while first quarter capital expenditure stood at USD 8.2 billion.

“Given the positive signs for energy demand in 2021, there are more reasons to be optimistic that better days are coming,” according to Aramco president and CEO Amin Nasser. “And while some headwinds still remain, we are well-positioned to meet the world’s growing energy needs as economies start to recover.”

RISING OIL DEMAND

Aramco results come amid vastly improving global economic conditions, despite parts of the world still affected by COVID-19.

This year, global oil demand is expected to increase by 6 million barrels per day (bpd), to average 96.5 million bpd, according to the latest report from the Organization of the Petroleum Exporting Countries (OPEC). 

“Slower than anticipated demand in OECD Americas during 1Q21, together with the resurgence of COVID-19 cases in India and Brazil, caused the 1H21 oil demand data to be revised downwards,” OPEC said in its latest monthly report. “However, positive transportation fuel data from the US, and acceleration in vaccination programmes in many regions provides further optimism in 2H21. The assumed return to some degree of normality and improved mobility is also expected to positively affect regions such as the Middle East and Other Asia in 2H21.”

Oil prices declined slightly by 1.2% in April, but remains near its highest level since January 2020 at USD 63.24 per barrel.

The surge in prices this year has much to do with falling inventories.

After nearly a year of robust supply restraint from OPEC+ and bloated world oil inventories that built up during last year’s COVID-19, demand patterns are returning to more normal levels. During March, OECD industry oil stocks drew by 25 million barrels to 2 951 million barrels, reducing the overhang versus the five-year average to only 1.7 million barrels (and 36.9 million barrels above 2015-19), according to the International Energy Agency (IEA). Stocks continued to fall in April.

“After five consecutive months of solid gains, crude oil futures prices fell in a volatile month of April, undermined by uncertain oil demand outlooks due to rising COVID-19 cases in several parts of the world, particularly India, Latin America and Japan, that weighed heavily on market sentiment,” OPEC noted in its report.

Still, the group said robust economic data from the US and China, and improving vaccination rollouts in the US, UK, and some European countries, limited price losses.

China, especially, has been driving global demand growth. Consumption in the world’s second largest economy is estimated to have risen 2.1 million bpd in March 2021, after rising 2.5 million bpd in February.

The bulk of year-on-year increases in March are attributed to solid gains in gasoline, diesel and jet fuel requirements, and an ease in restriction measures after the Lunar New Year holidays.

“Furthermore, passenger car sales, according to China’s Association of Automobile Manufacturers, have posted sales figures at around 1.8 million units in March, compared to 1.0 million units of sales in March 2020 and almost on par with March 2019 passenger cars sales of around 1.9 million units,” OPEC noted.

However, markets will be watching the oil demand in India, which has been ravaged by COVID-19 infection cases. Most analysts have cut demand forecast for the country in the second quarter, but many factors will ultimately determine the impact on demand. 

“These include government containment measures which are projected to be localised and targeting specific regions, the speed of vaccination rollouts and their positive impact on reducing hospitalisation and death rates, and lastly how quickly the population will adapt to COVID-19 measures,” OPEC noted.