Saud Arabia’s Foreign Reserves Plunged In July On Oil Production Cuts

Saudi Arabia’s net foreign assets plunged by as much as $16 billion in July, the biggest drop since the onset of the pandemic in 2020, as the Kingdom is slashing its crude oil production.

The reserves in net foreign assets fell to the lowest level since 2009, per data from the Saudi central bank cited by Bloomberg. Those reserves dropped to $407 billion (1.53 trillion Saudi riyals).

Saudi Arabia is cutting its crude oil production by 1 million barrels per day (bpd) through September, on top of its quota as part of the cuts of several members of the OPEC+ alliance that began in May.

Analysts expect Saudi foreign reserves to rise in September when the first performance-linked dividend from state oil giant Saudi Aramco is expected. Aramco said earlier this month that it intends to distribute performance-linked dividends over six quarters beginning in the third quarter of 2023.

Saudi Arabia’s finances have suffered so far this year, due to the lower oil prices compared to last year, and to the reduced Saudi oil production, with which the Kingdom looks to push up oil prices.

Higher expenditures on diversification from oil amid lower oil export revenues resulted in a widening budget deficit in Saudi Arabia, the world’s largest crude oil exporter, data showed earlier this month. Saudi government deficit jumped by 80% from the first quarter to $1.4 billion (5.3 billion Saudi riyals) in the second quarter of 2023, as spending on social benefits and capital expenditures jumped.

Non-oil revenues rose substantially, but oil revenues only inched up 0.6% compared to the first quarter and plunged by 28% compared to the second quarter of 2022, the data showed. 

Saudi Arabia’s economy is set to markedly slow down this year from last year’s 8.7% growth due to the oil production cuts the world’s top crude exporter is implementing in a bid to “stabilize the market.”

By Tsvetana Paraskova for Oilprice.com

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