Goldman Sachs predicts sharp decline in oil prices through 2026

In recent weeks, oil markets have faced a downturn due to various geopolitical tensions, notably between the United States and China, as well as OPEC+'s unexpected decision to increase oil output in May. As of April 2025, Brent crude prices have hovered around $63 per barrel, with forecasts suggesting even lower prices in the upcoming years. Economists at Goldman Sachs projected a decline in oil prices extending into 2025 and 2026, leading to concerns about the fiscal stability of oil-dependent economies, particularly Saudi Arabia. Saudi Arabia, being the world's largest oil exporter, relies heavily on oil as a revenue source, with forecasts indicating that crude oil will contribute significantly to government revenue and GDP. It is noted that about 60% of government revenue comes from oil, and a price of over $100 per barrel is deemed necessary to balance the budget. As oil prices remain low, economic experts like James Swanston, a Senior Economist at Capital Economics, have warned that Saudi Arabia is the most vulnerable among Middle Eastern economies due to its dependence on oil revenue, which has dire implications for its ambitious economic transformation, termed Vision 2030. To achieve economic diversification, Saudi Arabia has launched several 'giga-projects' aimed at reducing the economy's dependence on oil. These projects, which include the futuristic city of NEOM, are designed to attract investments and stimulate growth across multiple sectors. Since the initiation of Vision 2030 in 2016, approximately $1.3 trillion has been allocated for real estate and infrastructure initiatives. However, the declining oil prices may hinder progress on these mega-projects, leading to potential delays, especially if the government decides to cut capital spending in response to lower revenue. Despite the hardships, experts believe that Saudi Arabia has some resilience due to its low oil production costs. This allows the Kingdom to manage lower oil prices better than other oil-dependent nations. However, the ongoing challenges could drive the country to adopt more extreme fiscal measures, including cuts in public spending and increased borrowing to handle the projected fiscal deficits further. As a result, the situation presents a complex interplay of economic challenges that could influence the success of Saudi Arabia's transformative goals in the coming years.