Saudi Aramco turned a turbulent third quarter into stronger earnings, defying war-related disruptions to energy markets, production facilities and export routes as higher oil prices, a surge in refining margins and operational flexibility helped lift profits.
The Saudi oil giant's adjusted net income rose 9% year-on-year to 117 billion riyals ($31.2 billion), beating analysts' forecasts of $28.7 billion. Free cash flow jumped 20%, allowing Aramco to maintain its base dividend and raise it by 3.5% to 82.07 billion riyals ($21.89 billion).
Aramco also began preliminary engineering work to expand its East-West pipeline, aiming to strengthen export flexibility and protect supplies against future disruptions.
The move comes as Aramco President and CEO Amin Nasser warned that dangerously low global oil inventories, particularly diesel stocks, could intensify pressure on energy markets this winter. Rebuilding depleted inventories could take up to two years, he said.
Aramco's reported third-quarter net income attributable to shareholders surged 41.3% to 137.39 billion riyals ($36.64 billion), while adjusted net income climbed 9% to 117 billion riyals ($31.2 billion).
The gap largely reflected exceptional items, including a gain of about 25.9 billion riyals ($6.9 billion) from the sale of Aramco's stake in Malaysia's PRefChem refining and petrochemicals venture, alongside other adjustments excluded from adjusted earnings.
Aramco completed the sale of its 50% stake in joint ventures with Malaysia's Petronas in September as part of a broader portfolio restructuring.
The company attributed the rise in reported profit mainly to higher revenue, other sales-related income and gains from the disposal of its stake in an associate, partially offset by higher operating costs.
Higher crude prices provided a major boost. Aramco's average realized oil price reached $95.2 a barrel in the third quarter, up from $70.1 a year earlier, although below the second quarter's $108.1.
Production, however, remained under pressure.
Total hydrocarbon output stood at 11.05 million barrels of oil equivalent per day (boepd), down about 17% from 13.3 million boepd a year earlier. Output rebounded 17% from the second quarter, reflecting an operational recovery as Aramco restored part of its production capacity.
Liquids production, including crude oil, natural gas liquids and condensates, fell to 8.7 million barrels per day from 10.8 million, while gas output slipped to 12.3 billion standard cubic feet per day from 12.6 billion.
Lower crude sales volumes weighed on the upstream business. Adjusted earnings before interest, income taxes and zakat fell to $46.8 billion from $51.5 billion a year earlier, mainly due to lower volumes sold and higher production royalties, partially offset by stronger crude prices.
The downstream business told a different story.
Adjusted earnings before interest, income taxes and zakat in refining, chemicals and marketing soared 234% to about $10.3 billion from $3.1 billion, driven by a sharp improvement in refining margins.
Export flexibility helps Aramco navigate supply shock
As war-related disruptions upended oil flows, Aramco relied on its network of export routes and existing infrastructure to keep crude moving to customers.
Central to that effort was the East-West pipeline, which transports oil from Saudi Arabia's Eastern Province to export terminals on the Red Sea.
The company also used Arabian Gulf export terminals and ship-to-ship transfers to reroute shipments and maintain deliveries.
Speaking during Aramco's third-quarter earnings review, Nasser said the company had honored its commitments to customers despite what he called the biggest supply shock in the oil industry's history.
He credited Aramco's integrated operations, operational flexibility and rapid damage assessments for its ability to restore affected facilities.
More than 90% of materials needed for repairs and recovery were sourced locally, he said, while the company's response and asset-restoration speed was about six times better than industry benchmarks.
Aramco has now begun preliminary engineering studies for an expansion of its East-West pipeline and is considering additional storage capacity at major demand centers and along export routes. The aim is to diversify transportation options and reduce reliance on any single route during crises.
Nasser said the company was also examining other ways to strengthen supply resilience. Under current regional trade disruption conditions, the cost of expanding the pipeline could be recovered in about 15 days, according to Aramco's estimates.
The disruptions nonetheless took a toll on supply reliability, which fell to 97.8% in the third quarter from 99.9% a year earlier and 98.4% in the second quarter of 2026.
Low inventories raise risks for winter energy markets
Nasser warned that the global oil market was not yet out of danger, even after alternative supply routes and withdrawals from strategic and commercial reserves helped soften the impact of disruptions.
More than 3 billion barrels of oil liquids supply have been lost since the disruptions began, he said.
Alternative flows and withdrawals from strategic reserves helped narrow the shortfall to about 2 billion barrels. Demand management and commercial inventory drawdowns covered the remaining gap.
But these measures cannot replace sustainable supplies, Nasser cautioned.
He warned that global inventories, particularly diesel and middle distillate stocks, had fallen to worrying levels, leaving energy markets vulnerable to additional pressure as winter fuel demand rises.
Nasser expects global oil liquids demand to grow by about 2.4 million barrels per day in 2027 as demand management measures ease. Replenishing inventories drained during the crisis could take as long as two years.
Aramco targets swift production recovery, invests in AI
Aramco could return to pre-war production levels within days and restore its maximum sustainable capacity of 12 million barrels per day in less than three weeks, Nasser said.
The company has begun increasing production at its Zuluf oilfield, targeting a capacity increase of about 600,000 barrels per day by year-end.
Gas expansion projects are also moving forward, including the second phase of the Jafurah field, which aims to lift production to 2 billion standard cubic feet per day by 2030.
Beyond oil and gas, Aramco is expanding into new growth sectors, including artificial intelligence and mining.
Nasser said the company's investment in HUMAIN, through a 49% stake acquired for $2.6 billion in cash alongside the transfer of AI assets, aims to create an integrated platform spanning data centers, cloud services, AI models and applications.
Aramco will contribute its operational expertise, infrastructure and ability to supply low-cost, lower-carbon-intensity energy.
The venture is targeting 3 gigawatts of AI data center capacity by 2030.
Aramco Executive Vice President and Chief Financial Officer Ziad Al-Murshed underscored the financial upside of restoring production.
Every additional 1 million barrels per day of oil output could generate between $12 billion and $14 billion in annual operating cash flow, based on the company's assumptions about prices and market conditions, he said.
Aramco's ability to reach its maximum sustainable capacity of 12 million barrels per day in less than three weeks would also allow it to respond quickly to stronger demand.
Al-Murshed identified execution efficiency, growth and financial strength as the three pillars supporting the company's expansion and balance sheet.
Free cash flow excluding working capital changes reached $87.4 billion in the first nine months of 2026, up 35% from a year earlier.
He also reaffirmed Aramco's commitment to financial discipline and portfolio optimization, pointing to the sale of its stake in Malaysia's PRefChem refinery.
Cash flow jumps as Aramco strengthens its balance sheet
Despite operational headwinds, Aramco delivered stronger cash flow in the third quarter.
Cash generated from operating activities rose to 145.2 billion riyals ($38.7 billion) from 135.4 billion riyals ($36.1 billion) a year earlier. Free cash flow climbed 20% to 105.8 billion riyals ($28.2 billion), compared with 88.4 billion riyals ($23.6 billion) in the same period of 2025.
Excluding working capital movements, quarterly free cash flow reached $27.1 billion, up from $25.3 billion a year earlier.
For the first nine months of 2026, free cash flow excluding working capital changes surged 35% to $87.4 billion, highlighting the company's ability to generate cash from its core operations.
Capital expenditure fell to $10.2 billion in the third quarter from $12.4 billion a year earlier.
Aramco kept its 2026 capital spending guidance unchanged at $50 billion to $55 billion, including costs associated with repairing and restoring assets and its investment in HUMAIN.
Its gearing ratio improved to 5.5% at the end of September from 6.2% at the end of June, while return on average capital employed rose to 22.1% from 20.1% a year earlier.
Mohammed Al-Farraj, senior asset management executive at Arbah Capital, told Asharq Al-Awsat that Aramco was exceptionally well positioned to weather potential supply shortages in 2027.
Its competitive edge rests on low production costs, flexible export infrastructure and the ability to increase output to its maximum sustainable capacity of 12 million barrels per day, he said.
Al-Farraj noted that Nasser had indicated this capacity could become available within days, rather than necessarily taking three weeks.
But he cautioned against assuming that supply shortages would persist.
"Global demand forecasts are not the only factor determining future results," Al-Farraj said.
He pointed to International Energy Agency projections for oil demand growth of about 2.4 million barrels per day in 2027, alongside an expected recovery in global supplies of roughly 8.3 million barrels per day that year, according to the agency's August 2026 report.
Those figures suggest the market could see improving supply conditions rather than prolonged shortages, he said.
Al-Farraj said Aramco remained strategically positioned to benefit from any supply shortfall, but the scale of potential gains in 2027 would depend on demand, oil prices and the pace of the global production recovery.
Higher sales volumes combined with strong prices would likely support revenue and free cash flow. A rapid recovery in supply or weaker prices, however, could limit the financial benefit of increased output.
For Aramco, the latest figures underscore its ability to preserve liquidity, maintain financial flexibility and fund expansion despite supply disruptions and lower production.
Stronger free cash flow and reduced gearing also bolster its capacity to invest, meet shareholder commitments and expand production and export options as it prepares for further challenges in global energy markets.
