How Saudi Arabia could be affected by Opec+’s decision to ramp up production in April

Sliding oil prices prompt questions over Saudi Arabia’s oil pledges: Opec+’s decision last week to move forward with raising production levels in April and the subsequent slide in oil prices “close to multi-month lows” are raising questions over “whether the group’s key decision maker Saudi Arabia will stick to the plans,” Capital Economics wrote in a note seen by EnterpriseAM.

REFRESHER- Opec+ agreed to stick to plans to revive supply in April following repeated delays, with the group citing “healthy market fundamentals” and a “positive outlook.” Opec+ kept the door open, however, for future changes in policy, saying that the increase may be paused or reversed depending on market conditions. “This flexibility will allow the group to continue to support oil market stability,” the group said.

The Kingdom is set to raise production by 10% by the end of 2026, partially unwinding its 1 mn bbl / d voluntary cut. This is higher than other Gulf states including Kuwait and Oman — which plan on raising production by about 5% — but shy of the UAE’s planned 15% production hike.

Where oil prices stand: Brent crude futures fell 0.8% to USD 71.04 / bbl right after the decision was announced, recovering from an intraday low of USD 69.75. Futures currently stand at USD 70.36 / bbl. WTI crude fell 0.2% to USD 68.26 / bbl last Tuesday, and is down further to USD 66.72 / bbl today.

Falling prices “may not sit quite right with Saudi Arabia in particular,” Capital Economics argued, saying that if its prediction of the Kingdom’s oil production rising to 10 mn bbl / d by the end of 2026 happens concurrently with a drop in oil prices to USD 60 / bbl, it would lead to a larger fall in oil revenues than the country is experiencing under current conditions.

Falling oil prices could pressure the government’s fiscal position and widen the SAR 101 bn deficit it penciled for 2025, potentially leading to the scaleback of some projects, the National Bank of Kuwait (NBK) wrote in a report last week.

BUT- Saudi Arabia could be willing to bear the fiscal pressure from falling oil revenues “if it strengthens its long-term position in the oil market,” Capital Economics caveats.

On the flipside, lower dividends from Aramco could create more budget pressure: Aramco’s decision to cut its dividends by 31% in 2025, which is expected to widen Saudi Arabia’s budget deficit to 4% of GDP from 2.8% in 2024. Along with the potential hit to oil-related revenues, the lower dividends could lead to “a wider budget deficit than projected and increase the pressure for more fiscal consolidation measures,” according to Capital Economics.

Taxation presents a more sustainable approach in the long-term for the Kingdom: “A longer term approach to put the Kingdom’s public finances on a stronger footing would be to increase non-oil revenues through taxation,” Capital Economics wrote. Saudi Arabia remains behind other Gulf states that have more formal corporation tax and real estate taxes, which could be derailing the Kingdom’s goal of doubling non-oil revenues in the next five years from the revenues accrued in 2024, which Capital Economics estimates to be SAR 502 bn.