Saudi Aramco Reports Dip in First-Quarter Profit Amid Production Cuts

FILE PHOTO: A view shows branded oil tanks at Saudi Aramco oil facility in Abqaiq, Saudi Arabia October 12, 2019. REUTERS/Maxim Shemetov/File Photo

Saudi Aramco, the world’s largest oil company, announced a first-quarter net profit of $27.27 billion on Tuesday, marking a 14.5 percent decline from the previous year, as the Gulf kingdom maintained production cuts to stabilize oil prices amidst global market fluctuations.

The company reported a net income of 102.27 billion riyals ($27.27 billion), down from 119.54 billion riyals ($31.88 billion) for the same period in 2023.

Aramco attributed the decrease primarily to lower crude oil volume sold, reflecting the impact of ongoing efforts to balance supply and demand in the oil market.

Currently, Saudi Aramco is producing approximately nine million barrels per day (bpd), a significant reduction from its capacity of 12 million bpd.

These production cuts were initiated as part of efforts by the OPEC+ alliance, led by Saudi Arabia and Russia, to stabilize oil prices in response to global economic uncertainties and geopolitical tensions.

Since October 2022, the bloc has implemented a series of cuts, with Saudi Arabia further reducing production in April 2023 and June 2023.

In March, the Saudi energy ministry announced an extension of the production cuts through the second quarter of 2024, citing market conditions and the need for continued measures to support oil prices.

These cuts have impacted Aramco’s profitability, despite a partial offset from lower production royalties and an increase in crude prices driven by geopolitical developments and supply disruptions in certain regions.

Saudi Aramco’s financial performance holds significant implications for the Saudi economy, particularly as the country pursues its ambitious economic diversification plan, Vision 2030.

The plan, spearheaded by Crown Prince Mohammed bin Salman, aims to reduce the kingdom’s dependence on oil revenue and position it for a prosperous post-oil future.

However, the challenges posed by fluctuating oil prices and evolving market dynamics underscore the importance of sustainable economic reforms and investment in non-oil sectors to achieve long-term growth and stability.

Despite the dip in profits, Saudi Aramco remains a cornerstone of the Saudi economy.

The company’s initial public offering in December 2019 generated $29.4 billion, making it the world’s largest IPO to date.

The Saudi government continues to hold a significant stake in the company through the Public Investment Fund, which plays a key role in funding strategic development projects and supporting economic diversification initiatives.

However, the challenges facing Saudi Arabia are underscored by projections of budget deficits through 2026, as high spending on reform initiatives persists.

 The IMF said in April that, at current production levels, Saudi Arabia’s fiscal break-even oil price would be $96.2 per barrel in 2024. The US Energy Information Administration currently projects Brent crude to average $89 per barrel.

The Saudi finance ministry said in December it was projecting budget deficits through 2026 as it maintains high spending on reform initiatives. 

Saudi Arabia’s gross domestic product decreased by 1.8 percent year-on-year in the first quarter of 2024 compared with 2023, the General Authority for Statistics said in a preliminary estimate published last week.

“This decrease was primarily driven by a 10.6 percent decline in oil  activities,” it said.

Saudi Arabia has pledged to achieve net zero carbon emissions by 2060, a statement that has drawn intense scepticism from environmental activists.

Aramco has vowed to achieve “operational net-zero” carbon emissions by 2050, which does not include the emissions from customers burning its products.

In January, Aramco made the surprising announcement that the energy  ministry had ordered it to maintain production capacity at 12 million barrels per day, abandoning a target of 13 million bpd by 2027.

Officials did not explain the decision at the time, but Energy Minister, Prince Abdulaziz bin Salman, Prince Mohammed’s half-brother, later said it was spurred by the fact that “we’re transitioning”.

Additionally, the kingdom’s gross domestic product experienced a 1.8 percent decrease in the first quarter of 2024, primarily driven by a decline in oil activities, highlighting the urgent need for economic reforms and diversification efforts to mitigate reliance on volatile oil revenues.

Energy Minister, Prince Abdulaziz bin Salman, attributed this decision to a period of transition within the industry and the need to adapt to changing market dynamics and emerging environmental concerns.

Despite these challenges, Saudi Aramco’s role as a global energy powerhouse remains central to both the kingdom’s economy and the broader oil market dynamics.

As the company navigates through a rapidly changing energy landscape, its ability to adapt to evolving market conditions and embrace sustainable practices will be crucial in shaping the future of the global energy industry.

Jessica Bayley

Jessica Bayley is an international author and journalist. She covers global affairs, hard news, lifestyle, politics, technology and is also the author of "The Ladies of Belgium."