Slippery Customer

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What's going on?

Saudi Aramco – the world’s biggest oil company – reported a massive drop in profit for 2020 on Monday, as it continues to grapple with a problem hiding in plain sight.

What does this mean?

Just like its international rivals, Aramco had a hard time in 2020 when demand for and the price of oil went into freefall. Little wonder, then, that its profit for the year plunged 44% compared to the year before. Still, at least the oil giant has kept its word: Aramco announced it’ll pay investors $75 billion in dividends just like it promised it would, and even borrowed money to make sure it could afford it. That might be because the company’s feeling upbeat about the future: it reckons oil production levels will be back to normal by the end of the year.

Why should I care?

For markets: The pick of the oil titans?


Aramco’s bottom line is actually a lot more resilient than the average oil company’s: it has less debt than its rivals, as well as the lowest production cost for a barrel of oil (tweet this). And since 98% of its shares are owned by Saudi Arabia, it hasn’t fallen victim to the same wild price swings either: its home country doesn’t buy and sell the stock, but instead just fills its coffers with its dividends. That steady income is a big draw for other investors too – as long as they can get past the country’s environmental, social, and governance issues.



The bigger picture: Everyone guesses.


For all Aramco’s optimistism, a travel rebound isn’t a sure thing. In fact, investors sold off shares in European airlines and other travel companies on Monday, amid fears that rising coronavirus cases across the continent will end vacation season before it’s even begun. And to think, it was only last week that they were sending those stocks to all-time highs in hopes they’d benefit most from the economic recovery…

Originally posted as part of the Finimize daily email.

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