Era of high oil prices over - Azerbaijani expert
By Trend
The formation of world oil prices depends on a number of factors that are not always directly related to the economy, leading Azerbaijani economist, Professor Elshad Mammadov told Trend predicting further changes in oil prices in the context of the current deterioration of relations between Iran and the US.
"At this stage, the global pricing environment in the oil market shows a downward trend, which we have actually been witnessing in recent weeks," Mammadov said.
“Factors for stabilization of oil prices include, firstly, geopolitical tensions around Iran and Venezuela, and secondly, the agreement within OPEC+ format,” he said. “This made it possible to stabilize, to a certain extent, oil prices; otherwise, it would have been traded at around $40 today.”
"In June, the next meeting of the parties to the agreement is expected, and if the parties succeed in extending it, this will have a positive effect on the stabilization of oil prices,” he added. “But there is an important fact that the OPEC+ program involves countries that are interested in a larger supply of their oil to the market for foreign exchange inflow. Therefore, it is becoming increasingly difficult to negotiate within the OPEC+. This also needs to be taken into account.”
Mammadov went to say, “But even if the agreement is extended, a significant factor for the lowering of oil prices is the increase in supply in the oil market at the expense of the US shale oil and an increase in the US oil extraction.”
He added said that in the conditions when the volumes of the US oil in the world market increase and the US is actually becoming the biggest player in the oil market, it is extremely difficult to constantly keep prices for oil at the expense of the OPEC+ format.
“Given these nuances, it is safe to assume that the downward trends will exceed the trend towards stabilization and, even more so, the trend for the rise in oil prices,” he noted. “On the other hand, the world is increasingly using energy efficient technologies and developing alternative energy, which also keeps the trend down. There is one more thing that is directly connected with the formation of a new technological atmosphere in the global economy, which is more efficient use of energy resources.”
Therefore, taking into account all these important factors, it is necessary to prepare for low oil prices, he said. He noted that Azerbaijan, which is a part of the global economy, needs to accelerate the process of diversifying the non-oil sectors and continue to develop trade with those countries that already have a steady foreign trade turnover.
“It is necessary to work more actively in the post-Soviet space in order to establish cooperation ties and prepare for the post-oil era, when oil prices will not be able to level the risks that are formed due to the orientation of our economy specifically to the oil sector,” he said. “Azerbaijan should invest more actively in high-tech areas and enter an equivalent foreign trade exchange with other countries.”
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