Oil prices are among the most influential economic indicators on the Saudi economy and the local stock market. In the first 100 words of this article, we highlight the importance of oil prices as they reflect changes in global energy markets and are a key element in determining state revenues and the performance of listed companies, especially in the Tadawul market. Saudi Arabia, as the largest oil exporter globally, is closely linked to oil price movements, as any change in prices directly affects the government budget, the results of major companies like Aramco and SABIC, as well as investor confidence in the Saudi financial market. Therefore, understanding the dynamics of oil prices is essential not only for economic analysts but also for entrepreneurs and those interested in investment prospects in the Kingdom. In this article, we review the factors affecting oil prices, their relationship with the local economy, key financial data of major companies, and the latest developments in the energy sector, while adhering to the regulations of the Saudi Capital Market Authority.
Definition of Oil Prices and Their Role in the Saudi Economy
Oil prices refer to the global price of a barrel of crude oil, often measured by two main benchmarks: Brent and West Texas Intermediate (WTI). In the Saudi context, oil prices gain exceptional importance due to the economy's heavy reliance on oil revenues. The oil price is used as a primary indicator in setting the state budget, determining government spending, and estimating revenues for companies operating in the oil and petrochemical sector. Saudi Aramco, the world's largest oil company, is a key player in determining the prices at which it sells oil to its customers worldwide, especially in Asia. Thus, any change in oil prices directly reflects on company profits, the value of the Saudi riyal, and the level of investments in the Kingdom.
Factors Influencing Oil Prices Globally and Locally
Oil prices are subject to multiple influences, including global supply and demand, geopolitical tensions, decisions from organizations like OPEC+, and technological developments in alternative energy production. Globally, increased demand in industrial or emerging countries leads to rising prices, while an oversupply or the introduction of alternative sources results in lower prices. Locally, decisions by the Saudi government and the OPEC+ alliance in regulating production play a crucial role in supporting or stabilizing prices. Natural disasters, conflicts, and strikes in major production areas also rapidly affect price volatility. In 2024-2025, prices experienced significant fluctuations due to OPEC+ production cuts and the stabilization of supply and demand following the COVID-19 crisis.
Oil Price Developments During 2024-2025
In 2024, markets witnessed sharp fluctuations in oil prices, with Brent crude ranging between $80 and $86 per barrel by the end of the year. This followed OPEC+ decisions to gradually cut production to support prices, limiting global supply. At the beginning of 2025, prices stabilized around $80 per barrel with slight fluctuations, reflecting a balance between fears of declining global demand and increased U.S. production. The importance of these movements is highlighted by the Kingdom's reliance on an oil price breakeven for the government budget ranging between $75 and $80 per barrel, making price stability around this level vital for the local economy.
The Link Between Oil Prices and the Saudi Stock Market
The performance of the Saudi stock market (Tadawul) is closely tied to movements in oil prices. Typically, rising oil prices enhance investor confidence, increase profits for major companies (especially Aramco and SABIC), and improve government revenues. Conversely, market indicators decline when prices drop due to reduced profits for those companies and decreased public spending. In 2024, financial reports indicated a 13% decline in Aramco's profits due to a decrease in the average oil price, which reflected on the company's stock movement and some related sectors. Nevertheless, the diversification of the Saudi economy has gradually weakened the direct impact of oil fluctuations on the market as a whole.
Oil Prices and Their Impact on Saudi Arabia's Budget
Oil prices play a pivotal role in preparing the budget of the Kingdom of Saudi Arabia. Every increase in prices means an increase in government revenues, providing greater room for investment and social spending. In the 2024 budget, the government assumed an average price of $75 to $80 per barrel to cover expenses. Analysts estimate that the breakeven point for the Saudi budget is around $80 per barrel. If prices decline, the state may resort to using reserves or increasing borrowing. Conversely, if prices rise, this allows for financial surpluses to be used in Vision 2030 projects and the development of non-oil sectors.
Impact of Oil Prices on Major Saudi Companies' Results
Saudi Aramco (2222) is a clear example of the impact of oil prices on company performance. In 2024, revenues were reported at 1.801 trillion riyals compared to 1.856 trillion in 2023, with net profit dropping by 13% to reach 393.9 billion riyals. This decline is primarily due to lower average global oil prices and reduced sales due to production cuts. Petrochemical companies like SABIC are also directly affected by oil prices, as any change in costs or revenues reflects on their quarterly results. Oil service companies are influenced by the level of capital spending by Aramco and major companies in the sector.
The Oil and Gas Sector in the Saudi Market
The oil and gas sector in the Kingdom consists of upstream exploration and production activities, downstream refining and processing, and oil services. Saudi Aramco dominates most production operations, while refining and petrochemical activities are distributed among several companies like SABIC, Yanbu refineries, and Safola. These companies significantly contribute to the market capitalization of Tadawul, and their performance indicators reflect the state of the sector as a whole. With Vision 2030's aim to diversify the economy, the importance of companies investing in clean energy and hydrogen is increasing, reflecting a gradual change in the sector's composition.
OPEC+ and Its Role in Regulating Oil Prices
The OPEC+ alliance, led by Saudi Arabia and Russia, plays a key role in regulating oil prices through decisions to cut or increase production. By coordinating among members, the alliance seeks to achieve a balance between global supply and demand. In 2024, OPEC+ continued to implement gradual production cuts, supporting oil prices above $80 per barrel. Markets closely monitor OPEC+ meetings, as their decisions often lead to rapid movements in global oil prices, directly impacting the budgets of producing countries, the results of major companies, and the movement of financial markets.
Renewable Energy Trends and Their Impact on Oil Prices
The global shift towards clean energy presents both challenges and opportunities for the Saudi oil sector. With increased investments in solar energy and hydrogen, the Kingdom aims to diversify income sources and reduce reliance on oil. Aramco and its partners have announced pioneering projects for producing green and blue hydrogen, and the Kingdom has seen significant expansions in renewable energy projects under Vision 2030. Nevertheless, demand for oil remains strong in the near to medium term, while the impact is expected to grow on oil prices in the future as global reliance on energy alternatives increases.
Competition in the Oil Sector: Locally and Globally
Saudi Aramco monopolizes crude oil production locally, while local competition in the petrochemical and energy sector is led by companies like SABIC. Globally, Aramco competes with oil giants like ExxonMobil, Shell, and BP, in addition to national companies like ADNOC and QatarEnergy. The real competition for Aramco comes from global market fluctuations, government policies, and technological transformations in alternative energy. The company benefits from its massive size, operational efficiency, and ability to invest in mega-projects, enhancing its position in facing future challenges.
Saudi Financial Sustainability Amid Oil Price Volatility
The Kingdom seeks to achieve financial sustainability by diversifying income sources and reducing reliance on oil in the budget. The government invests oil surpluses in strategic projects and sovereign funds and encourages the growth of non-oil sectors such as tourism, industry, and technology. In the event of falling oil prices, the state resorts to reserves or borrowing to cover deficits while maintaining essential spending. The Kingdom also relies on financial reforms such as imposing new taxes and fees and developing the business environment to attract investments, contributing to reducing the impact of oil fluctuations on the overall economy.
Key Developments in the Saudi Oil Market 2024-2025
Among the most notable developments in 2024-2025 is Aramco's announcement of declining annual and quarterly profits due to falling oil prices, the government's continued implementation of renewable energy projects, and the approval of a conservative budget for 2025. The sector also witnessed the signing of massive agreements in hydrogen and expansions in solar energy farms under Vision 2030. Globally, strong demand for oil from Asia and Europe continued, with expectations of a global economic recovery. Conversely, the market faces challenges from rising U.S. production and concerns about slowing economic growth, making the future of oil prices contingent on balancing these factors.
Monitoring Oil Prices and Reliable Information Sources
To track oil price movements and news about the Saudi market, it is advisable to refer to reliable sources such as the Saudi Stock Exchange (Tadawul) for stock prices, the Capital Market Authority (CMA) for regulatory reports, Argaam for financial data, and the official website of Aramco (Investor Relations). International reports from the International Monetary Fund, the International Energy Agency, and economic media such as Bloomberg and Reuters provide specialized analyses on oil price developments. It is important to ensure data currency, especially when making financial decisions or analyzing the performance of oil-related companies.
Conclusion
Oil prices play a pivotal role in the Saudi economy, shaping the budget, the results of major companies, and the level of confidence in the financial market. Amid global fluctuations, the Kingdom seeks to balance benefiting from oil revenues while diversifying income sources. By monitoring the financial indicators of Aramco and companies linked to the sector and understanding the factors influencing prices globally and locally, a broader perspective on market dynamics can be formed. However, consulting a licensed financial advisor is essential before making any financial or investment decisions, especially in highly sensitive sectors like oil and energy. Remember that the SIGMIX platform provides educational and analytical content, and investment decisions should be based on your financial circumstances and individual goals.
Frequently Asked Questions
Oil prices play a key role in determining the performance of the Saudi stock market, especially with the local economy and major companies like Aramco and SABIC relying on oil revenues. Rising prices boost company profits, support government spending, and increase investor confidence, often leading to an improvement in the overall market index (TASI). Conversely, falling oil prices lead to a decline in profits for oil-related companies, negatively impacting stock prices and overall market movement. However, the Saudi market has become more diversified in recent years, reducing the direct impact of oil fluctuations on all sectors.
The breakeven oil price is the price Saudi Arabia needs to achieve a balance between revenues and expenses in the public budget. In recent years, the breakeven price has been estimated at around $75–80 per barrel, reflecting the importance of keeping prices at this level to cover essential government expenses. If prices exceed this threshold, the Kingdom achieves financial surpluses; if they fall below it, it may have to use reserves or increase borrowing. The actual breakeven price depends on government policies and the extent of income source diversification.
In 2024, Saudi Aramco experienced a 13% decline in net profit compared to 2023, with net profit reaching 393.9 billion riyals compared to 452.8 billion riyals in the previous year. This decline is primarily due to lower average global oil prices and the impact of production cuts under OPEC+ agreements on sales volume. Despite this decline, Aramco maintained its position as the largest oil company in terms of profits and market value, supported by operational efficiency and high production levels.
The OPEC+ alliance plays a vital role in regulating oil prices by coordinating among producing countries to set production levels. During periods of oversupply, the alliance tends to cut production to support prices, as seen in 2024. OPEC+ decisions directly affect global market balance, and financial markets closely monitor them due to their immediate impact on prices and the performance of major oil companies.
With increasing investments in renewable energy and hydrogen technologies, global demand for oil is expected to gradually decrease in the long term. In Saudi Arabia, massive projects in solar and hydrogen energy have been launched under Vision 2030. Nevertheless, oil remains a primary energy source in the coming years, and demand is expected to remain strong until 2030. In the long run, the gradual shift to clean energy may exert downward pressure on oil prices.
It is advisable to diversify the investment portfolio across various sectors, such as banking, industry, and tourism, alongside oil and petrochemicals. Some investors use futures contracts to hedge against price fluctuations, but these tools require expertise in financial markets. At the state level, Saudi Arabia relies on sovereign funds and diversified investment assets to mitigate the impact of oil fluctuations on the public budget.
The best sources for following oil price news include the Saudi Stock Exchange (Tadawul) for stock prices, the Saudi Capital Market Authority (CMA) for regulatory reports, Argaam for financial data, and Aramco's official website. International reports from the International Monetary Fund, the International Energy Agency, and global media such as Bloomberg and Reuters provide reliable analyses on oil prices and forecasts. It is important to continuously update data to ensure accurate analysis.
Rising oil prices enhance government liquidity by increasing oil export revenues, allowing for funding development projects and reducing financial deficits or achieving surpluses. If prices fall, the government may resort to drawing from reserves or borrowing to cover the deficit. For this reason, Saudi Arabia seeks to diversify revenue sources by developing non-oil sectors and increasing investments in new projects.
If oil prices fall below the breakeven level (around $80 per barrel), the Saudi budget may face a deficit, especially if the shortfall in oil revenues is not compensated by other sources. The government relies on financial reserves or borrowing to bridge the gap. However, economic diversification policies indicate that the direct impact of oil fluctuations on the budget has become less significant than before.
Oil and petrochemical companies are directly affected by changes in oil prices, primarily Aramco (2222) and SABIC (2010). Oil service companies, such as drilling and maintenance firms, are also impacted by the level of capital spending in the sector. Other sectors like banking or retail are less directly affected but may experience indirect effects through changes in government spending or investor confidence.