Oil Prices and Their Impact on the Saudi Financial Market and Cement Companies

Oil prices represent the value of crude oil barrels traded in global markets, determined by key indicators such as Brent and West Texas Intermediate. The Kingdom of Saudi Arabia holds a leading position in global oil production and exports, making the national economy heavily reliant on oil revenues. The state budget, government spending, and investment trends are influenced by price levels, as rising prices contribute to financial surpluses that enable the government to execute major developmental projects, such as Vision 2030 and infrastructure initiatives. Conversely, falling prices pose challenges to public finances and limit the ability to fund projects. The direct impact of oil prices is evident in the movement of the general index of the Saudi stock market (TASI), where rising prices enhance market confidence and increase liquidity, while sharp declines lead to a drop in investor sentiment and economic activity.

Oil prices are determined by the balance of supply and demand in the global market. Key influencing factors include OPEC and OPEC+ production quota decisions, global demand levels (especially from China, India, and Europe), geopolitical events in production areas, oil inventories in industrialized countries, and developments in alternative energy. Additionally, natural disasters, armed conflicts, or economic sanctions can affect the flow of oil supplies and thus the price per barrel. Weekly inventory reports from the United States also periodically influence price movements. In recent years, the impact of the shift towards renewable energy and global climate policies on future oil demand forecasts has increased.

The year 2024 witnessed relative stability in oil prices, with the average price of Brent crude ranging between $80-85 per barrel, supported by OPEC+ production cut agreements and some geopolitical tensions. Prices temporarily rose above $90 during certain periods, especially amid regional crises, before stabilizing with a return to balance between supply and demand. As 2025 begins, forecasts suggest that prices will continue to range between $85-90, supported by partial global economic recovery and cautious production policies from OPEC+. It is important to note that these prices provide the Kingdom with a relatively secure coverage of government budget expenses, positively reflecting on the investment climate and the local stock market.

The price of oil plays a pivotal role in determining the volume of Saudi government revenues, as most revenues come from oil export returns. When prices rise, the budget achieves a financial surplus, allowing the government to increase spending on major national projects and support social welfare programs and infrastructure investment. This spending, in turn, reflects on GDP growth and increases job opportunities in construction and industrial sectors. Conversely, when prices fall, public finances come under pressure, which may necessitate spending cuts and the postponement of certain projects, negatively affecting the business sector and companies listed on the Saudi financial market. Additionally, oil prices influence cash liquidity rates and the strength of the Saudi riyal, which is tied to the US dollar.

The close relationship between oil prices and the performance of the Saudi stock market is evident through the direct impact on the shares of major companies, particularly Saudi Aramco, which holds a significant weight in the general index (TASI). Rising oil prices support the profits of oil and industrial companies and enhance the confidence of local and foreign investors, leading to increased trading volume and liquidity in the market. Sectors linked to government projects and infrastructure, such as cement, contracting, and petrochemicals, also benefit. Conversely, a decline in oil prices leads to reduced expected profits and may cause corrective waves within the market, affecting investor sentiment. This interconnection makes monitoring oil prices essential for understanding the dynamics of the Saudi financial market.

Cement companies in Saudi Arabia, such as Hail Cement (3001), are indirectly affected by fluctuations in oil prices. Rising oil prices often lead to increased government spending on construction and infrastructure projects, boosting domestic demand for cement. Additionally, some production costs (such as fuel and electricity) are linked to energy prices, which may raise operating costs if global energy prices rise. Conversely, falling oil prices may reduce demand for cement due to decreased government investments, despite the potential for lower production costs. Therefore, the profitability of cement companies depends on the balance of these two factors. In 2024, most cement companies benefited from stable oil prices and increased local demand due to major projects.

Hail Cement Company is one of the leading companies in the cement and building materials sector in the Kingdom. The company was established to meet the growing demand for building materials in the Hail region and northern Saudi Arabia. According to the latest available data in mid-2024, the company's share price was approximately 11.60 SAR, with a market capitalization of around 1.14 billion SAR. The company did not announce a specific price-to-earnings ratio at that time, but typically, sector ratios range between 10-15. Annual dividend distributions ranged between 5-8% of the share value, with the general assembly approving cash dividends for 2023 in June 2024, reflecting the company's stability and ability to achieve good profitability under prevailing economic conditions.

The Saudi cement sector includes several large companies such as Yamama Cement, Northern Cement, Yanbu Cement, and Eastern Cement, alongside Hail Cement. The market experiences strong competition linked to several factors, including local demand related to real estate and infrastructure projects, energy and production costs, and the ability to export to neighboring markets. In 2024, the sector benefited from increased government spending on Vision 2030 projects, with total company profits rising to approximately 2 billion SAR in the first nine months. However, companies face challenges related to fluctuations in global energy prices and excess production capacity during certain periods. Strategies employed include product diversification, improving operational efficiency, and expanding into foreign markets.

Rising oil prices lead to increased foreign currency inflows and bolster hard currency reserves, enhancing liquidity in the Saudi economy. This liquidity reflects on investor behavior in the stock market, where risk appetite and investment in national stocks increase, especially in sectors such as petrochemicals, energy, and construction. Government investment funds also support market activity by deploying surplus oil revenues into diverse financial assets. Conversely, falling oil prices limit the ability of funds and institutions to increase their investments in the market, sometimes leading to the exit of some investors or a reduction in their positions in anticipation of declining profits.

Geopolitical events play a significant role in determining oil price trends, especially in the Middle East and the Gulf region. Armed conflicts, attacks on oil facilities, or economic sanctions often lead to price increases due to fears of supply disruptions. For example, spring and summer 2024 saw a temporary rise in prices following attacks on oil facilities, before stabilizing with OPEC+ intervention. These fluctuations directly affect Saudi financial markets, as market indices quickly respond to changes in global oil prices. Local and foreign investors closely monitor these developments to make their investment decisions.

OPEC+ significantly controls global oil production levels, making it a key player in stabilizing oil prices. In 2023-2024, OPEC+ issued several decisions to cut or stabilize production to support prices and avoid sharp fluctuations. Saudi Arabia plays a leading role in these alliances, and its decisions directly impact global prices and the Kingdom's budget. Continued OPEC+ support for the market and production regulation enhances the stability of government revenues and supports confidence in the Saudi economy, positively reflecting on the stock market and companies linked to energy and construction.

Saudi cement companies rely on several strategies to cope with market fluctuations, including increasing production capacity by opening new production lines or expanding existing plants, diversifying markets through exports to neighboring countries, improving operational efficiency to reduce costs, and utilizing alternative energy sources when necessary. Companies also focus on developing new products that meet the needs of major projects, such as sulfate-resistant cement or those designated for large infrastructure. Collaboration with government entities to regulate the market and the flexibility of financial policies help companies adapt to periods of decreased demand or rising energy costs.

Saudi Vision 2030 projects are among the largest developmental plans in the region, encompassing massive investments in infrastructure, housing, transportation, and renewable energy. Funding for these projects primarily relies on oil revenues, as rising oil prices provide the government with a financial surplus that can be used to implement projects within specified timelines. Conversely, falling prices require a review of spending priorities and budget adjustments. Thus, oil prices remain a critical factor in the success of Vision projects and achieving their economic and social objectives.

The performance of Hail Cement Company (symbol: 3001) can be monitored through the official Tadawul website or specialized financial platforms such as Argaam and Investing.com. These sites provide real-time data on prices, trading volumes, and financial performance indicators, along with earnings reports and annual dividend distributions. The company also publishes its official announcements through the news center on Tadawul, including key decisions from the general assembly, business results, and cash distributions. It is advisable to rely on official and trusted sources for accurate information before making any financial decisions.