Oil giant Saudi Aramco reported a first-quarter profit on Tuesday of $31.88 billion, down nearly 20% from the same period last year as energy prices have sunk over global recession concerns.

The firm known formally as the Saudi Arabian Oil Co. blamed the drop — compared to $39.47 billion in the same quarter last year — on the lower crude oil prices. Aramco made a $30.73 billion profit in the fourth quarter of last year.

“We continue to deliver high reliability and low cost of production financially,” Aramco President and CEO Amin H. Nasser said on a conference call with analysts. “We continue to generate strong earnings and cash flows further, demonstrating our ability to deliver through oil price cycles.”

Benchmark Brent crude traded Tuesday around $76 a barrel, down from a high of $125 in the last year.

Saudi Arabia’s vast oil resources, located close to the surface of its desert expanse, make it one of the world’s least expensive places to produce crude. For every $10 rise in the price of a barrel of oil, Saudi Arabia stands to make an additional $40 billion a year, according to the Institute of International Finance.

In March, Aramco announced earning $161 billion last year, claiming the highest-ever recorded annual profit by a publicly listed company and drawing immediate criticism from activists amid concerns about climate change. However, as prices drop, so do Aramco’s revenues.

“Aramco is a very simple machine: It’s oil production times price, minus a little bit of cost,” said Robin Mills, the CEO of Qamar Energy, a Dubai-based consulting company. “Profit is down. That’s all oil-price driven.”

While saying Aramco was “working to further reduce the carbon footprint of our operations,” Nasser remained bullish on the world’s need for fossil fuels, citing future estimated demand from China and India.

“We continue to believe that oil demand is likely to grow, and we believe that the world will continue to need oil and gas for the foreseeable future to support a sustainable and affordable energy transition,” Nasser said. “Our concern remains that the industry is not investing enough to meet expected future demand.”

Nasser said Aramco also was looking at opportunities to produce liquid natural gas outside of the kingdom in “the U.S. and Australia and in other parts of the world.” The company also plans to spend up to $55 billion in capital projects as well to expand its production.

Those earnings came off the back of energy prices rising after Russia launched its war on Ukraine in February 2022, with sanctions limiting the sale of Moscow’s oil and natural gas in Western markets.

However, oil prices have sunk in recent weeks amid fears of a coming recession as central banks in the U.S. and elsewhere raise interest rates to try to tame inflation. That’s even after OPEC+, a group of countries including the cartel and those outside it like Russia, announced surprise production cuts in April totaling up to 1.15 million barrels. Recent OPEC+ cuts have seen U.S. President Joe Biden warn of potential “consequences” for Riyadh, even though his national security adviser just visited the kingdom and met with Saudi Crown Prince Mohammed bin Salman.

“In our view, the recent weakness seen in the oil market was driven by concern over tightening of monetary policy by central banks and (the) effect on economies,” Nasser said. “This was also worsened by the crisis (involving) regional banks in the U.S. and concern over its contagion effect. However, in our view, the markets overreacted to the situation, resulting in the sell-off by traders.”

Aramco stock rose 3% in trading Tuesday to close at $8.96, giving the oil firm a $1.97 trillion valuation and putting it only behind Apple and Microsoft for the highest market capitalization in the world. Just a sliver of its worth, under 2%, is traded on the exchange. The Saudi government holds 90% of the company, with about 8% held by Saudi sovereign wealth funds.

Separately Tuesday, Aramco announced it would begin issuing performance-based dividends to stockholders, on top of the dividends it already offers. Its base dividend in the fourth quarter of last year was $19.5 billion, ranking it as the highest in the world for a publicly traded firm.

Manufacturing Business Technology by Jon Gambrell, June 2, 2023