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Lower crude oil production in Azerbaijan positively impacting global oil prices

Oil&Gas Materials 22 December 2020 18:21
Lower crude oil production in Azerbaijan positively impacting global oil prices

BAKU, Azerbaijan, Dec.22

By Fidan Babayeva – Trend:

Reaching an agreement on significant cuts in crude oil production between OPEC+ countries in 2020 and successful trials of vaccines against COVID-19 infection in recent months have positively impacted the growth in global crude oil prices, Trend reports referring to the Ministry of Finance of Azerbaijan.

"Considering that in the first 9 months of 2020, the share of added value for Azerbaijan’s oil-gas sector in GDP amounted to 30.2 percent, in state budget revenues - 54.6 percent, in the country's exports - 87.2 percent, changes in oil prices will eventually impact 12 macroeconomic and fiscal indicators," said the ministry.

According to the ministry, given the above, determining the volume of transfers to the state budget in the national currency manat instead of foreign currency when drawing up the budget allows reduce the direct impact of the volatile oil prices in world commodity markets on it.

So, the volume of transfers from the State Oil Fund of Azerbaijan (SOFAZ) to the state budget, being an important component of the budget’s oil revenues, doesn’t depend on the oil price and exchange rate. However, the fall in oil prices could lead to a more rapid depletion of its assets by reducing the income of SOFAZ, the ministry noted.

"If, when calculating budget revenues for 2021, the sale price of 1 barrel of oil, foreseen at the level of $40, decreases to $35, then as a result of the indirect impact of the decline in oil prices on the non-oil sector, the overall budget revenues may decrease by 1.3 percent compared to the forecast, of which 0.5 percent account for non-oil revenues.

The reduction in crude oil production (including in accordance with the decision to be taken by the OPEC + countries) may negatively affect the consolidated budget revenues," summed up the ministry.

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