Saudi Arabia, the production pacesetter of OPEC countries, said in June that it would not lift the production cuts it enacted in the fourth quarter to support stronger prices, according to market reports.

Russia, the OPEC second largest producer, refused to commit to reduced production, the reports said. In the meantime, a new analysis was released showing just how important price supports are to the desert kingdom.spwm saudi

Oil marketers have long believed that Aramco, the Saudi national oil company, enjoyed the lowest breakevens of any oil company because of its vast inventory of legacy production wells. The impact of such amortized assets allowed Aramco to realize breakevens of $10 bbl or less, or so conventional wisdom held.

However, a new filing on its finances has lifted the veil on Aramco’s costs and caused analysts to suggest the Aramco’s breakeven is closer to $40 bbl. In fact, a report in June by an oil market expert predicted prices would not remain below $45 bbl for too long without the Saudis taking action to cut production and raise prices.

When Aramco ramped up production in late 2014 to teach U.S. shale producers a lesson, the ensuing price drop in 2015 caused real pain for the Saudi economy and cut deeply into Aramco’s income and free cash flow. When prices recovered in 2017, Aramco was again posting figures that returned it to the top spot as the world’s most profitable company.

This spring, Aramco, a private company with very closely held books, issued a bond offering that provided a glimpse into company finances and revealed just how far ahead it is in terms of profitability. With Brent crude averaging $71.34 in 2018, Aramco posted $111 billion in earnings, compared to earnings of $59.4 billion for Apple, the world’s second most profitable company. The next oil company on the list, ExxonMobil, posted earnings last year of $20.8 billion. An examination of the financial picture at Aramco by analyst Robert Rapier showed it earned just $13 billion during the downturn in 2016.

If prices were to drop to $45 bbl, OPEC, led by the Saudis “would have to take action to prop up prices as the cartel did in 2016. Otherwise, they (Saudis) would be in deep financial trouble,” Rapier commented.

In the meantime, markets this spring continued riding the oil price roller coaster with no end of the ups and downs in sight.

According to DrillingInfo, flat prices in early June reflected a market “being pulled in opposite directions” by the OPEC supply cut extension and concerns about the health of the global economy.