WEEKLY ECONOMIC REVIEW
Economic perspective of the week
Last week the Minister of economic development Farkhad Aliyev informed, the government plans increasing predicted oil price up to $35 per barrel in budget of 2006. The Minister stated, this figure ws reflected in macro-economic predictions for 2006.
It is necessary to indicate, tendency of increase of oil price budget predictions is keeping for several years, particularly, this indicator was $19.5 per barrel in 2003, $22 per barrel in 2004 and $25 per barrel in 2005.
Practically, all oil exporting countries face with task of definition of calculated oil price during compilation of the state budget. Due to impossibility and big volatility of world oil prices, it is very complex to settle this issue. At establishment of high calculated price governments of oil exporting states risk encountering with big challenges during execution of budget, in case actual prices are lower than calculated ones.
By establishing of low price huge incomes rest in different accumulation funds and predominantly do not bring benefit to society.
Thus, one of the most distributed methodic during establishment of calculated oil price is definition of its basic long term level, based on study of long term trends of the world oil market.
At that, short-term fluctuations of price are excluded from general dynamics and optimal long term price at designing of budget is calculated. Meantime it is not known on what empiric observations new calculated prices are based. Additionally, this is preliminary prediction. More detailed predictions are to appear in autumn. And then one may suppose, we may learn what basic elements of figure $35 per barrel are, unless it is corrected by that time.
One may state, situation in world market in short and middle term perspective will not be so bad, comparing with present one. Majority of analysts confirm this. Thus, huge reserves are available for maintaining of calculated price in high level.
However, it is very difficult to state, to what extent of correctness new calculated price reflects actual long term trends of oil market.