After a short period of stability, the oil price started to fluctuate again. The trend is downwards. This trend is expected to continue next year.
The price of oil continues to fall on the world markets. The price of a barrel of Brent oil has fallen to below $70 on some days. There are also predictions that this trend could continue. But how reasonable are these assumptions? What lies ahead for the oil market?
We present an article from the newspaper “Kaspi” on this topic.
It’s $70 in the budget
It should be noted that when preparing the draft balance sheet and state budgets of Azerbaijan for 2025, the price of a barrel of “Azeri Light” oil was considered at $70. This is stated in the Ministry of Finance’s statement on the summary and preliminary indicators of the state budget for 2025. This is $5 less than in 2024. According to forecasts presented by the Ministry of Economy in August this year, the average annual export price of a barrel of oil in the baseline scenario for 2026-2028 is $65.
The power of political influence
According to MP Vugar Bayramov, the main reasons for the long-term decline in oil prices are a number of processes taking place on the world oil market:
“The decline in the oil price on the world market is related to the decline in demand for oil on the world market, as well as to the increase in production. Volatility is observed on the world oil market. On the one hand, demand is declining, and on the other hand, political factors are quite active, in particular, messages from the United States, in the pre-election campaign, and the promises made affect the oil market. As a result, the change in the oil price on the world market will depend on the decision of OPEC+, as well as other instruments of political influence. But OPEC+ still maintains its influence on the market.”
How long will the price cuts last?
V. Bayramov stated that the duration of depreciation will depend on these processes:
“If OPEC+ decides to reduce production, then we can expect a stabilization of oil prices on the world market. Otherwise, the price reduction is expected to continue. That is, the duration of the reduction will depend on the position of OPEC+. At the same time, the results of the US elections do not affect the oil market either.”
It affects the amount of incoming currency.
The MP believes that oil prices in oil-producing countries such as Azerbaijan tend to be optimal:
“80 percent of Azerbaijan’s exports are oil and oil products. Therefore, as a country that produces and exports oil, we are interested in an optimal and stable price. For us, it is acceptable that the price of a barrel of oil fluctuates around $80. When prices are high, the country receives more currency. Of course, the decrease in prices has a negative effect on the volume of currency. We can suggest continuing the conservative policy in the budget. “The volatility of the current preference of the oil market is more appropriate.”
The risk factor for war is 15 to 20 percent.
Economist Khalid Karimli spoke about the influence of wars on oil prices:
“The reason for the fall in oil prices on world markets is that demand is weaker than expected. Oil reserves in the USA are increasing, indicators relating to oil consumption in China point to a decline in demand. That is why prices are falling. The war factor also influences the oil price. As soon as the situation in the Middle East stabilises, the oil price will fall. The risk of war is 15 to 20 percent. “Depending on demand and political issues, OPEC’s market regulation is also important. There are concerns about the world economy. There is even the risk of a crisis in the USA. The fall in prices depends on these factors.”
“Next year it will be even cheaper”
According to the economist, as long as the current situation continues, oil prices will become cheaper:
“In general, oil prices are expected to be cheaper next year than this year. Because there has been talk that prices will be lower this year than last year. This is also true now. In addition, as alternative energy, electric cars and environmental issues arise in production, oil prices will rise and in the long term the price will continue to fall.”
Kh Karimli said that although the impact of the global market depreciation on the Azerbaijani market is not serious, the depreciation has a direct impact on the revenues of the Oil Fund and the country’s balance of payments.
