Saudi Aramco's Q1 Profits Fall 4.6% Amid Oil Price Slump

Saudi Aramco, the world's largest oil company, has reported a significant decline in its first-quarter profits, largely due to the slump in global oil prices. The company's net profit for the quarter decreased by 4.6% to 97.5 billion Saudi riyals (26 billion U.S. dollars). Despite a reduction in total dividends, the free cash flow was insufficient to cover the dividend payments. The operating profit, which fell by 5.3% year-on-year, exceeded analysts' expectations.

The drop in oil prices has put considerable financial strain on Saudi Aramco, affecting its overall financial performance. The company's earnings have been closely tied to the fluctuations in oil prices, and the recent downturn has had a direct impact on its profitability. The decrease in net profit and operating profit highlights the challenges faced by the company in maintaining its financial stability amidst volatile oil markets.

In response to these financial pressures, Saudi Aramco has decided to reduce its stock dividend by approximately one-third to 850 billion Saudi riyals by 2025. This move is part of a broader strategy to alleviate some of the financial strain on the company. However, this reduction in dividends also means a decrease in a key revenue source for the Saudi government, which is already facing increasing fiscal pressures.

Despite an increase in oil production, the decline in oil prices since April has added further pressure on both Saudi Aramco and the Saudi government. Over the past five weeks, the OPEC+ alliance, led by Saudi Arabia, has implemented two rounds of additional production increases. Combined with the impact of trade wars initiated by Donald Trump, London oil futures briefly fell below the four-year low of 60 dollars per barrel.

The company's total dividend for the quarter was reduced to 21.36 billion U.S. dollars, a significant decrease from 31 billion U.S. dollars in the same period last year. This reduction is primarily due to Saudi Aramco's decision to significantly cut the variable dividend component linked to performance after completing the excess profit distribution for 2022.

In a statement, Saudi Aramco's CEO Amin Nasser acknowledged the challenges posed by global economic uncertainty and its impact on oil prices. He emphasized the company's strong financial performance and its ability to maintain a sustainable dividend policy even during market volatility. Nasser highlighted the importance of prudent capital planning in ensuring long-term growth and financial stability.

The continued low oil prices pose a significant challenge for Saudi Arabia's economic modernization plans, led by Crown Prince Mohammed bin Salman. These plans, which include the development of new cities like Neom and investments in the sports industry, have already led to an expansion of the fiscal deficit and a record increase in debt levels in the first quarter. The Saudi government and its sovereign wealth fund together hold more than 97% of Saudi Aramco's shares.

Currently, Brent crude oil futures are trading at approximately 64 dollars per barrel, well below the 92 dollars per barrel needed for Saudi Arabia to balance its budget, according to the International Monetary Fund. Saudi Aramco's average oil selling price for the first quarter was 76.30 dollars per barrel, down from 83 dollars per barrel in the same period last year.

Facing expectations of oversupply and weak demand, major banks and energy institutions have successively lowered their oil price forecasts for the year. The U.S. Energy Information Administration has lowered its forecast for the average price of Brent crude oil this year to 65.85 dollars per barrel. Morgan Stanley has reduced its price forecast for the second half of the year by 5 dollars to 62.5 dollars per barrel and predicts that the market surplus in the second half of 2025 will reach 1.1 million barrels per day, an increase of 400,000 barrels per day from previous estimates.

Goldman Sachs has lowered its forecast for the average price of Brent crude oil for the remainder of 2025 from 63 dollars to 60 dollars, and for 2026 from 58 dollars to 56 dollars. Goldman Sachs Middle East and North Africa economist Farouk Soussa warned that if oil prices remain around 62 dollars this year, Saudi Arabia's budget deficit of 30.8 billion dollars for 2024 could double.

This situation could force Saudi Arabia to increase borrowing, cut spending, and sell assets, all of which could have significant impacts on both domestic and international financial environments. The Saudi government may need to implement additional measures to mitigate the financial strain and ensure economic stability in the face of these challenges.