Talk about a self-inflicted injury.
Saudi Aramco, the most valuable company in the world in terms of market capitalization, saw its revenues decrease by US $ 34 billion as the strategy of its main shareholder came home.
The Saudi government, which owns 98% of the company, made the catastrophic decision earlier this year to flood the oil market at a time when global demand for the product was being decimated by the coronavirus. The result was a price depression that left many oil producers, including Alberta, in a perilous state.
Aramco’s net profit fell 25% in the first quarter, as Brent prices fell 65.6% during the period. Aramco also saw its market capitalization drop from a peak of US $ 2 trillion last year to US $ 1.6 trillion today.
The company’s free cash flow in the first quarter was $ 15 billion, less than the dividend it had paid for the period.
“Indeed, Aramco would borrow to pay its dividend, which cannot be viable in the long term,” said analysts at AllianceBernstein, according to Bloomberg.
After ordering Aramco to pump oil to record levels in recent months, Riyadh is now backtracking on Monday’s decision to cut production by 1 million barrels a day. But the war to gain market share has already cost the Saudi economy billions of revenue losses at a time when it must spend a lot to support the economy affected by the coronavirus.
Foreign exchange reserves of Saudi Arabia – considered one of its main assets – were also affected, falling by more than $ 27 billion in March, the largest decline since 2000, leaving reserves at $ 464 billion. dollars, according to estimates from the Royal Bank of Canada. Crude Brent is trading just over US $ 30 a barrel this morning, less than half the target of US $ 76 the kingdom needs to balance its budget.
All of this is cold comfort for Alberta, one of the victims of the Saudi oil war.
The Royal Bank of Canada notes that more Albertans lost their jobs in March and April (360,000) than in the last four recessions combined. The unemployment rate fell from an already high level of 8.7% in March to 13.4% in April.
But ATB Financial estimates that this figure is only half the picture, as the province’s labor force also contracted 6.2% in April.
“This means that the pandemic closings have led many Albertans to completely abandon the workforce. The unemployment rate does not include “discouraged workers” who have stopped looking because they do not think they will find a job, “ATB analyst Rob Roach said in a note. “If we include Albertans who want to work but are not in the workforce, the unemployment rate would be 20.4%.”
Even if the reopening of the economy and federal aid would be favorable, the Alberta economy would take a long time to recover, RBC said.
“Low oil prices and the glut of global supply will not help. We expect energy producers to remain in survival mode until 2020 (and possibly beyond), cutting costs and cutting production. This will slow the recovery considerably, “wrote RBC economists Robert Hogue and Ramya Muthukumaran in a note.
Alberta’s GDP is expected to contract 11.2% this year – the largest decline among Canadian provinces, according to RBC.
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MICKEY IN A MASK: As Shanghai Disneyland opened on Monday for the first time since late January, the hit song from Walt Disney Co. “A Whole New World” was playing in the background. And it was a very different world for the guests who had to stay in line six feet (two meters) apart, wear masks and board half-empty rides to provide space necessary to prevent possible spread of the coronavirus. Read the full story here.
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Ontario’s budget watchdog predicted on Monday that the province’s deficit would quadruple to $ 41 billion this year, the largest in its history.
The government predicted in a mini-budget in March that its plan of $ 7 billion in new spending and $ 10 billion in taxes and other deferrals would drop the deficit from $ 9 billion to $ 20.5 billion for 2020-2021. Read the full story here.
Can your employer change your professional role when you return to work? Businesses generally reserve the right to direct your work and assign tasks as they see fit, within reason, writes Howard Levitt.
Today’s Posthaste was written by Yadullah Hussain (@Yad_Fpenergy), with files from The Canadian Press, Thomson Reuters and Bloomberg.
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