Saudi Aramco Earnings: Higher Oil Prices Support Earnings but Affect Cash Flow Generation

Key Morningstar Metrics for Saudi Aramco

• Fair Value Estimate
  : SAR 26.80
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Saudi Aramco’s Earnings

Aramco’s first-quarter net income of USD 33.6 billion was in line with market expectations and up 34% sequentially, supported by higher oil prices and refining margins. Gearing rose to 4.8% from 3.8% at year-end 2025, while free cash flow declined 32%.

Why it matters: Aramco capitalized on higher oil prices and refining margins, largely offsetting volume headwinds from disruptions around the Strait of Hormuz. However, hedging losses and the working capital build obscured these gains at the cash flow and leverage level.

• Rising oil prices led to a USD 15.8 billion working capital build, preventing full coverage of capital expenditures and shareholder distributions and contributing to higher gearing. Excluding this effect, adjusted free cash flow rose 62% year over year to USD 34.4 billion.
• Production of 12.6 million barrels of oil equivalent per day declined sequentially amid current volatility, but the ramp-up of the East-West pipeline to its full 7 mmb/d capacity allowed Aramco to continue exporting, highlighting its operational flexibility.

The bottom line: Our SAR 26.80 fair value estimate and Wide Economic Moat Rating are unchanged, leaving shares fairly valued following a 14% year-to-date run. Nothing in the quarter changes our long-term outlook. Peers reported similar earnings and cash flow issues, given the late-quarter volatility.

• We expect the benefits from stronger oil prices and refining margins to become more visible from the second quarter on, supporting higher shareholder distributions. This underpins management’s decision to raise the first-quarter dividend by 3.5% year over year to USD 21.9 billion.
• The outlook remains highly dependent on the timing of a Strait of Hormuz reopening. Our fair value estimate assumes production normalizes toward the fourth quarter under a relatively quick reopening scenario. A prolonged disruption could pressure our 2026 earnings estimate, depending on the price reaction, although we see limited impact on our fair value estimate.