Expert – “It was important to revise oil price in state budget”

Expert – “It was important to revise oil price in state budget”

07 August 2020, 15:34 282

The price of $ 35 will allow to regulate all speculative steps in the market


The oil price in the state budget of Azerbaijan has been revised and is projected at around $35 per barrel, said Azerbaijani Finance Minister Samir Sharifov. This was reflected in the bill "On state budget of the Republic of Azerbaijan for 2020". Currently, the oil price is $55.


Speaking at the meeting of the Committee on Economic Policy, Industry and Entrepreneurship of the Azerbaijani Parliament (Milli Majlis), Sharifov recalled that a few months ago, oil prices fell to $ 12-13. "The price of the Azerbaijani oil has also reduced. The issue of oil prices is constantly discussed among the relevant agencies,” he further noted.


But how will oil prices change towards the end of the year? Is the change in the budget acceptable?


According to energy expert Zafar Valiyev, it is difficult to make a long-term forecast for oil prices currently since they vary depending on several factors. "First of all, prices fluctuate depending on the compliance of OPEC countries with their commitments. At the same time, the consequences of the pandemic are one of the main factors affecting prices. The July figures on the commitments of OPEC and allied countries are satisfactory. I think that the terms of the Vienna Agreement will be observed by the participating states in August. But as one of the consequences of the pandemic, demand for oil and petroleum products could increase if sanctions are eased. We do not yet know whether the next stage of passenger and air transport will reach the previous level, and whether the demand for oil will increase. But we can predict that prices will stabilize by the end of the year. Now the main task of OPEC countries is to prevent market fluctuations. Because fluctuations in oil prices run counter to the interests of both producer and consumer countries, as well as refineries. In the coming months, the terms of the Vienna Agreement must be complied with in order to be able to remove excess oil from the market. The current price increases serve to sell the volume of oil reserved during the low-price period. It is known that in April-March there was a sharp decline in market prices. Oil suppliers and trader structures now sell the volumes of oil in their assets. This is a step that directly serves to reduce resources. If these issues are resolved, prices will stabilize by the end of the year, and some increases may be observed next year. Because the daily loading of about 750 oil refineries in the world with raw materials varies between 75-80 percent. This is a normal figure today. This figure is likely to increase by the end of the year. However, before the pandemic, this figure was 93-94 percent. Now it is necessary to prevent daily price increases in oil prices. However, the Vienna Agreement does not stipulate any quotas on exports. On the other hand, exports play a more important role in regulating the market than production,” Valiyev said.


The expert said that the decision to set the price of oil at $ 35 in the budget is important. "This is a price that regulates all speculative steps in the market. The fluctuation of oil prices around $ 45 is temporary. The low demand for oil and large oil reserves make it possible to say so. We can't say how much US oil production will be in the coming months. There are already significant increases in oil production in Brazil, Canada and Norway. Therefore, the current price does not correspond to market conditions. In this sense, it was important to change the price of oil in the budget. Prices of $ 35 may be acceptable. But this will affect the amount of budget revenues,” he added.


Head of the Oil Research Center, Ilham Shaban, said that falling prices have a direct impact on falling oil revenues. During a pandemic, these reductions are inevitable. "Therefore, certain changes are made to the budget. But in reality, it is very difficult to predict the average price of oil. The point is that in the first half of the year, the average profit of the Oil Fund was $ 38. Therefore, the government wants to insure itself against all negative scenarios. Oil is such a raw material that its price can change at any time. Sometimes prices rise and fall at unpredictable levels. Our oil revenues will also change based on this average price. Therefore, the decision to set the oil price at $ 35 in the budget is understandable. According to the International Monetary Fund (IMF), the average oil price for 2020 will fluctuate between $ 39-40.5. Therefore, the decision to calculate the price from $ 35 is important,” he noted.