They’ve got a lot of fiscal space. Debt-to-GDP last year was 26%, and they’re asset-rich with large deposits. Borrowing will remain a key tool in the second half of the year.
Also, their budget already anticipates lower oil revenue due to the end of the Aramco special dividend. So, they are pulling back on spending, borrowing more, and preparing for a lower revenue environment. However, the breakeven metric out there of $90 can be misleading. They don’t need to run a balanced budget right now, especially in this growth phase of the non-oil economy. Structural reform in sectors like tourism, logistics, aviation, localization, and manufacturing, is gaining traction and will help buffer the economy through oil price cycles.
Is there room for upward momentum on oil prices?
Demand growth is still expected to be weaker than last year, at below 1 million barrels a day. Meanwhile, supply is likely to exceed that, especially with OPEC+ ramping up. So mid-$60s oil doesn’t surprise me. And even if we take into account the slight climbdown in the US tariff posture, we’re still worse off than before. We might be at 15% today, but at the height of uncertainty, it could’ve been 25%, that’s the highest since the 1930s. This remains a significant overhang on global trade. And when you combine that with structural changes in China’s economy, shifting from traditional oil demand toward petrochemicals, the picture is mixed. The market is still pricing in softer oil demand compared to past expectations.
Should we expect OPEC+ to continue adding volumes through Q3?
They might continue for a bit, especially in the near term, it’s the season for it, and they’ve already started down this path. But I could imagine them dialing it back later in the year if oil prices soften or if inventories start to build more than they’re comfortable with - just to keep the market balanced.