In the first quarter of 2025, Saudi Aramco reported a 5% decline in net profit compared to the same period last year, primarily due to lower oil prices and production rates. The company's net income for the three months ending March 31 was $26 billion, slightly surpassing analyst predictions of $25.3 billion but down from the $27.3 billion reported in the first quarter of 2024.
Aramco's financial performance further revealed a decrease in free cash flow, which fell to $19.2 billion from $22.8 billion in the corresponding period last year. Similarly, cash flow from operating activities decreased from $33.6 billion last year to $31.7 billion this year. These figures suggest ongoing financial strain for the oil giant as it navigates a challenging market environment characterized by persistently low crude prices and diminishing global demand.
In response to these pressures, Aramco had previously announced a substantial reduction in its performance-linked dividend payout for the fourth quarter of 2024, slashing it from $10.2 billion to $200 million. This figure was maintained for the first quarter of 2025, with the payout scheduled for the second quarter. While the company's base dividend, excluding performance-based payouts, increased by 4.2% year-on-year to $21.1 billion, the overall dividend saw a significant decline from $31 billion in the same period last year to $21.36 billion, primarily due to the cut in the performance-linked component.
Aramco's CEO, Amin Nasser, attributed the company's financial performance to the global trade dynamics that have affected energy markets in the first quarter of 2025. Economic uncertainties have further impacted oil prices. Despite these challenges, Nasser emphasized Aramco's robust financial performance, underscoring the company's unique scale, reliability, and low-cost operations. He also highlighted the importance of disciplined capital planning and maintaining a long-term perspective during volatile times.
The decision to reduce dividends alleviates some financial pressure on Aramco but poses challenges for the Saudi government, which relies heavily on oil revenue. The reduction means less income for the government, which is already grappling with expanding budget deficits and increasing debt due to ambitious megaprojects and declining oil prices.
Saudi Arabia's revenue potential has also been constrained by its adherence to OPEC+ production cuts aimed at stabilizing the oil market. However, this policy took a dramatic turn in April when Saudi Arabia and several OPEC+ allies announced an unexpected acceleration in production increase plans, even as markets reacted negatively to the news of U.S.-imposed global tariffs.
In May, OPEC+ decided to further raise its production targets for June by 411,000 barrels per day. This marks the second consecutive month of accelerated unwinding of the 2.2 million barrels per day voluntary cuts that had been in place since early 2024.
Major banks and energy agencies have been revising their oil price forecasts downward, anticipating significant supply surpluses and weakened demand. The U.S. Energy Information Administration projects Brent crude to average $65.85 per barrel this year. Meanwhile, Morgan Stanley has lowered its price outlook to $62.50 per barrel for the second half of the year, a $5 per barrel reduction from its previous forecast. The bank also predicts a market surplus of up to 1.1 million barrels per day in the latter half of 2025, an increase of 400,000 barrels per day from its earlier estimates.
Goldman Sachs has also adjusted its forecasts, predicting Brent crude will average $60 per barrel for the remainder of 2025, down from a previous estimate of $63. Looking ahead to 2026, the bank expects prices to average $56 per barrel, compared to an earlier forecast of $58.
The International Monetary Fund estimates that Saudi Arabia requires oil prices to exceed $90 per barrel to balance its budget. In April, Goldman Sachs warned that Brent crude at $62 per barrel could potentially more than double Saudi Arabia's 2024 budget deficit, originally projected at $30.8 billion.
Farouk Soussa, a Middle East and North Africa economist at Goldman Sachs, explained that if oil prices remain around $62 this year, Saudi Arabia's deficit could increase from approximately $30-35 billion to $70-75 billion. This scenario would likely necessitate increased borrowing, expenditure cutbacks, and potentially more asset sales,