Talk about a self-inflicted wound.
Saudi Aramco, the world’s most valuable company by market capitalization, saw its revenues shrink US$34 billion as the strategy of its biggest shareholder came home to roost.
The Saudi government, which owns 98 per cent of the company, had made the catastrophic decision earlier this year to flood the market with oil at a time when global demand for the commodity was being decimated by the coronavirus. The result was a price depression that has left many oil producers, including Alberta, in a perilous state.
Aramco’s net profit fell 25 per cent in the first quarter, as Brent crude prices fell 65.6 per cent during the period. Aramco has also seen its market cap fall from a peak of US$2 trillion last year to US$1.6 trillion today.
The company’s first quarter free cashflow came in at $15 billion, less than the dividend it paid for the period.
“Effectively, Aramco would be borrowing to pay its dividend, which cannot be sustainable in the long term,” said analysts at AllianceBernstein, according to Bloomberg.
After ordering Aramco to pump oil at record levels over the past few months, Riyadh is now retreating with a decision Monday to cut production by 1 million barrels per day. But the war to gain market share has already cost the Saudi economy billions in lost revenues at a time when it has to spend heavily to prop up the economy hit by the coronavirus.
Saudi Arabia’s foreign exchange reserves — seen as one of its key strengths — has also taken a hit, declining by more than $27 billion in March, the sharpest fall since 2000, leaving reserves at $464 billion, according to Royal Bank of Canada estimates. Brent crude is trading just above US$30 per barrel this morning, less than half of the US$76-price target the kingdom needs to balance its budget.
All this is cold comfort for Alberta that is one of the casualties of the Saudi oil war.
Royal Bank of Canada notes that more Albertans lost their job in March and April (360,000) than in the past four recessions combined. Unemployment rate jumped from an already high of 8.7 per cent in March to 13.4 per cent in April.
But ATB Financial believes the figure paints only half the picture, as the province’s labour force also contracted by 6.2 per cent in April.
“This means that the pandemic-related shutdowns have led many Albertans to drop out of the labour force altogether. The unemployment rate does not include ‘discouraged workers’ who have stopped looking because they don’t think they will find a job,” ATB analyst Rob Roach wrote in a note. “If we include Albertans who want to work but are not in the labour force, the unemployment rate would be a whopping 20.4 per cent.”
While the reopening of the economy and federal aid would be supportive, Alberta’s economy would take a long time to get back on its feet, RBC believes.
“Rock-bottom oil prices and global supply glut won’t help. We expect energy producers to stay in survival mode through 2020 (and possibly beyond), slashing expenditures and trimming output. This will significantly slow the recovery,” RBC economists Robert Hogue and Ramya Muthukumaran wrote in a note.
Alberta’s GDP is expected to contract 11.2 per cent this year — the steepest decline among Canadian provinces, RBC estimates.
Was this newsletter forwarded to you? Sign up here to get it delivered to your inbox.
MICKEY IN A MASK: As Shanghai Disneyland opened Monday for the first time since late January, Walt Disney Co.’s hit song “A Whole New World” played in the background. And it was a very different world for guests required to stay six feet (two meters) apart in lines, wear masks and climb aboard rides half-empty to provide the space needed to prevent possible spread of the coronavirus. Read the full story here.
- Statistics Canada to report international merchandise trade figures for March at 8:30 a.m. ETThe Prime Minister will address Canadians on the COVID-19 situationEnbridge Inc. will hold its virtual annual meeting of shareholdersNotable Earnings: Calfrac Well Services Ltd., Stelco Holdings Inc. Thomson Reuters, IAMGOLD Corp., George Weston Ltd., Kinross Gold Corp., Sun Life Financial, Gibson Energy Inc., MEG Energy Corp., Black Diamond Group, Finning International Inc., Suncor Energy (after markets close). The Walt Disney Company, Fiat Chrysler Automobiles N.V., Beyond Meat Inc.
- Tim Hortons lays out its path back to normal, hoping to reopen dining areas across Canada by next month
- Futures edge higher on recovery hopes, China tariff exemptions
- Shopify launches retail card reader in Canada as merchants prepare for post-COVID commerce
- Gold miners’ profits ‘set to explode’, but companies persist with no-premium mergers
- Alstom to stick to financial terms of rail deal with Bombardier
- Bishop’s Impala joins campaign to oust CEO of Teck Resources
- Ottawa to create bridge financing for big companies, including airlines and energy, that need help in crisis
- Ottawa examining new, existing tools to get web giants to pay up: Guilbeault
- 2nd death at Cargill: Calls from Opposition, union to shut down for worker input
Ontario’s budget watchdog projected Monday that the province’s deficit will quadruple to $41 billion this year, the largest in its history.
The government projected in a mini-budget in March that its plan for $7 billion in new spending and $10 billion in tax and other deferrals would see the deficit rise from $9 billion to a projected $20.5 billion for 2020-21. Read the full story here.
Can your employer change your job role when you return to work? Companies generally reserve the right to direct your work and assign duties as it sees 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.
Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at firstname.lastname@example.org, or hit reply to send us a note.