Expert says economic recovery underway amid growing oil prices [INTERVIEW]

By Ayya Lmahamad

Based on the results of May, it is possible to say that economy’s recovery under the COVID-19 conditions is already underway due to the rising oil prices, expert Ilham Shaban said in an interview with Azernews on June 9.

He stated that from the first calendar day of summer, oil prices have started to rise, which was followed by the announcement of the Wall Street Journal that Saudi Arabia, OPEC and OPEC+ countries want to continue reduction of oil production from May 1 till September 1.

Shaban stated that in April 2020, OPEC and OPEC+ countries forecasted oil prices of $40-$45, which, taking into account the current growth rate of the world economy as well as the impact of the COVID-19, can be considered as a fair price corridor for crude oil.

“But there is still volatility, i.e. oil prices fluctuate by $1-$2 between morning and evening sessions. On the other hand, I would say that this OPEC+ deal is the first large-scale market stabilization solidarity among oil-producing countries,” stated the expert.

He stressed that as a results of May, it is possible to say that recovery process is already underway.

“I would say that the price corridor of $40-$45 will stabilize by the 4th quarter. Although pricing will also be influenced by the fact that soon there will be reports on countries indicating trends of economic growth, as well as at what level the economy is recovering in the post- pandemic period, after the easing of the regime,” he emphasized.

Shaban highlighted the importance of oil for Azerbaijan as a regulatory link in the economic stability and the overall welfare of all citizens, and that oil prices are highly important for the economy.

“It plays a big role in the country's income, as 75 percent of total exports are crude oil, and if we take into account oil products and gas, then it accounts for 91- 92 percent. Therefore, oil prices set on the London Stock Exchange are of great importance for Azerbaijan. Although the price of Azerbaijani oil is not set on this exchange, but the price of our oil between the seller and the buyer at the sales terminals is set in relation to Brent,” he said.

Furthermore, he stated that this year country applied its obligations under OPEC+ deal administratively right, i.e. physically closing wells and reduced production. In his opinion, it is reasonable to expect production of 34.5-35 million barrels this year, taking into account last year’s production of 37.5 million barrels and the 3 million barrel reduction.

“At the moment, if the post-pandemic period goes well and oil prices are set at $50+ for crude oil, this is a very good vision for country’s economy for the next year.  Since the Oil Fund is established as an economic safety belt in such situations, it is normal for us to lose for example $5 billion this year, as next year we will be able to restore them under the conditions that I have announced,” stated the expert.

Touching upon an issue of the impact of COVID-19 on the country’s economy, Shaban mentioned that capital investments in the oil and gas sector will be less this year compared to last year.

“At present, the State Oil Company and BP are reducing their revenues. This is normal practice, as all over the world oil companies are moving all projects to the next year when everything will be restored and they will be able to finish their financial year not with losses but at least with minimal profit,” he said.

On the other hand he mentioned that there are still some profitable projects that are still ongoing this year in current conditions.

“For example, last year in September the construction of a new platform for Azeri Central East project was started and they are continuing this project this year but with minimal costs, and large-scale work will be done next year,” he stated.

Regarding the perspectives of the development of energy and oil sectors, he emphasized that Azerbaijan is already turning to the oil-importing country, as we export crude oil but import oil products such as gasoline and even jet fuel.

Good points in the development of these sectors are that Azerbaijan built an oil refinery in Turkey, as well as last year purchased 10 percent in the Russian oil refinery, and now it was announced that a project is considered on joint processing of Azerbaijani oil in Belarus.

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