Saudi Arabia’s oil revenues have been suffering from the oil price slump during the second quarter. But there’s a silver lining in falling crude prices – profits from refining the crude rise with cheaper feedstock.

While Saudi Arabia has been restricting crude oil production and exports as part of the OPEC+ deal, it has been running refineries at near-record levels this year and exporting record-high volumes of refined petroleum products.

Stronger refining margins and higher exports of petroleum products have generated more income for the Kingdom, partly offsetting some revenues lost due to the lower crude exports and the crash in oil prices, Reuters energy columnist Ron Bousso notes.

More profits from refined products cannot offset the lost revenues from crude, but they are a welcome reprieve at a time of soaring budget deficit for the world’s top crude oil exporter.

Saudi Arabia’s crude oil production inched up by 10,000 barrels per day (bpd) in March to a five-month high of 8.957 million bpd, according to the latest data from the Joint Organizations Data Initiative (JODI).

Domestic refinery intake, on the other hand, jumped by 323,000 bpd to a 10-month high of 2.944 million bpd, according to the JODI database, which compiles self-reported figures from individual countries.

The March refinery output was a few barrels below the record high of 2.96 million bpd that Saudi Arabia saw in April 2024.

The refinery intake in March was also significantly higher compared to the 2020-2024 range, JODI data showed.

In March, Saudi crude oil exports slumped by 793,000 bpd to 5.754 million bpd, per JODI data. But refined product exports jumped to a record high of 1.58 million bpd, per data from Kpler cited by Reuters’s Bousso.

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Saudi fuel exports fell to below 1.5 million bpd in April and to 1.42 million so far in May, according to data from Kpler.

The observed decline in product exports in recent weeks has been likely a result of refinery maintenance ahead of the peak demand season in the northern hemisphere.

Strong fuel demand and refining margins this summer would help Saudi Arabia cut some of its losses from the slide in crude oil prices.

Going all-in on a war to reclaim market share, as indications from OPEC+ currently are, the Saudis appear willing to continue enduring lower crude oil prices.

However, with a budget breakeven oil price estimated at about $90 per barrel, the world’s top crude oil exporter will be running a much higher deficit this year than previously expected.

The Kingdom already booked a hefty budget deficit for the first quarter, even before oil prices plunged in April.

Saudi Arabia’s budget deficit jumped to $15.6 billion (58.7 billion Saudi riyals). That’s already more than half of the deficit the Kingdom had forecast for the full year—a deficit of $27 billion (101 billion riyals).

The second-quarter deficit will be even higher than in Q1, as oil prices have languished in the low $60s per barrel Brent since they crashed in early April.

All the deficit in the first quarter was covered by borrowing, suggesting that Saudi Arabia prefers to continue tapping debt markets to using central bank foreign currency reserves.

With oil at $60-$65 per barrel, Saudi Arabia may have to accelerate borrowings and defer planned investments in its mega initiatives such as the futuristic city of Neom, analysts say.

Last week, Saudi Minister of Economy and Planning, Faisal Alibrahim, said that the Kingdom is always ready for multiple oil price scenarios.

“We have the long-term fiscal planning and medium-term frameworks that help us adjust depending on what scenario actually plays out,” Alibrahim said at the Qatar Economic Forum in Doha.

By Tsvetana Paraskova for Oilprice.com

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