Oil prices rising sharply: how will Azerbaijan react?

Oil&Gas Materials 5 April 2019 14:45 (UTC +04:00)
Prices for oil of benchmark brands switched to moderate growth, and investors continue to assess the data on changes in fuel stocks in the US last week
Oil prices rising sharply: how will Azerbaijan react?

Baku, Azerbaijan, April 5

By Emin Aliyev

Prices for oil of benchmark brands switched to moderate growth, and investors continue to assess the data on changes in fuel stocks in the US last week. June futures for Brent crude at the London Stock Exchange ICE Futures went up by $0.24 (0.35 percent) - to $69.55 a barrel.

As it became known on April 4 from a report by the US Department of Energy, oil reserves in the country last week increased by 7.24 million barrels, while experts on average expected reduction by 500,000 barrels.

Meanwhile, the reserves of gasoline in the US at the end of last week decreased by 1.78 million barrels, distillates - by 2 million barrels. Oil production in the US grew 100,000 barrels per day, setting a new record of 12.2 million barrels per day.

The news that US President Donald Trump will meet with Vice Premier of the State Council of China Liu He, who will arrive in the US capital for trade negotiations, also became a positive factor for the market on April 4.

Azerbaijani oil has also seriously risen in price. The price of the AZERI LT CIF oil, produced at the Azeri-Chirag-Gunashli block of oil and gas fields, amounted to $71.51 per barrel at the Italian port of Augusta on April 4, or $0.72 more than on April 3, a source in Azerbaijan's oil and gas market told Trend on April 5.

The AZERI Light FOB Ceyhan oil price was $70.87 per barrel on April 4, or $0.71 more than the previous price.

Azerbaijan has been producing AZERI LT since 1997 and exports it via the Baku-Tbilisi-Ceyhan and Baku-Supsa pipelines, as well as by rail to the Georgian port of Batumi.

Azerbaijan also exports URALS oil from Russia’s Black Sea port of Novorossiysk. The oil is delivered there via the Baku-Novorossiysk pipeline.

The price for URALS-NOVO with shipment from port was $69.04 per barrel on April 4, or $0.53 more than the previous price.

Meanwhile, analysts are very cautious and pessimistic about the future: for example, Dmitry Marinchenko, the director of natural resources and commodities group at international rating agency Fitch Ratings, said at the annual Fitch conference in Baku that oil prices will decline in 2019.

“According to our basic forecasts, oil prices in 2019 will be about $65, in 2020 - $62.5, and then they will gradually fall to $57.5 per barrel,” he noted. “The stressful forecast is $50 per barrel in 2019, $45 in 2020, and in the long run about $50 per barrel.”

The expert noted that since the beginning of 2019, oil prices have slightly increased, market volatility continues.

“Among the positive trends, one can note the efforts of OPEC+, at the same time there is geopolitical instability, US sanctions against Iran, unstable production in Venezuela, Nigeria and Libya,” he added. “The increase in US production, trade wars etc are also among the negative factors.”

On December 7, 2018, an agreement was reached at the fifth ministerial meeting of the non-OPEC member and non-OPEC countries in Vienna to cut daily oil production by 1.2 million barrels. As part of the agreement, Azerbaijan has reduced daily production by 20,000 barrels since January 1, 2019.

Azerbaijan, meanwhile, is looking at things in a much more optimistic and pragmatic way. Thus, on April 5, the Russian media have spread a message that Azerbaijan’s state oil company SOCAR, which hasn’t yet had major oil assets in the Russian Federation, may acquire the Antipinsky oil refinery and oil fields from New Stream group of Dmitry Mazurov.

The Russian media reported that SOCAR agreed on the purchase and will pay a symbolic amount for 100 percent of the assets. The transaction can be closed before the end of the year. The capacity of the primary processing of the Antipinsky oil refinery is 9 million tons of oil per year, the plant can produce gasoline and diesel fuel that meet Euro-5 standards. Oil reserves are 45.5 million tons in C1+C2 categories, industrial production didn’t start, it was planned to produce 4 million tons per year by 2024-2025.

Unlike many other countries exporting oil, Azerbaijan actively invested in the development of the non-oil economy. The policy pursued by Azerbaijani President Ilham Aliyev in this area has brought impressive results. Moreover, Azerbaijan is interested in increasing non-oil exports, and is achieving this.

As much as 58 percent of Azerbaijan’s GDP accounts for the non-oil sector ($19.3 billion), compared to 51 percent in the previous year. GDP per capita followed a similar trend, increasing by 14.4 percent. The average salary was $318, while the consumer price index rose by 2.6 percent. The total value of imports and exports for 2018 amounted to $6.86 billion and $13.4 billion, respectively. The export and import of Azerbaijan grew by 38 percent and 29.5 percent over the year. As much as 8.2 percent of all exports account for the external oil sector.

All this vividly demonstrates that Azerbaijan has learned from past global economic shocks. There is an understanding of the situation and the way out of it, the citizens support President Ilham Aliyev and trust his political and economic course. Azerbaijan once again demonstrates that it is ready for any scenario of the development of the situation around oil prices.