Azerbaijan reduced oil export in March, hopes for return of OPEC + deal

On April 9 (at 18:00 Baku time), Azerbaijani Energy Minister Parviz Shahbazov will take part in a joint video conference of all oil-producing countries of the world on the difficult situation on the world oil market due to the Corona Virus pandemic, in which the economies of most countries froze and demand for energy dropped to minimum, which brought down oil prices to $ 15-25 per barrel (depending on grade).

According to the commitments made in December 2019 to OPEC +, to which Azerbaijan joined the format 4 years ago, the average daily oil production in the country in 2020 should not exceed 769 thousand bpd (including condensate).

According to Advisor to the Minister of Energy of Azerbaijan Zamin Aliyev (ASTNA), a new quota of Azerbaijan for 2020 can be discussed at a video conference on April 9, as oil producing countries of the world agreed to reduce the total daily production by 10-15 million barrels per day in order to return oil prices to an acceptable price all corridor is $ 55-65 / barrel.

The state budget of Azerbaijan for 2020 is calculated at an oil price of $ 55 / barrel, but the Ministry of Finance is preparing its adjustment, the contours of which may be presented in April.

Many analysts believe that the world will not see such oil prices in 2020, as the COVID-19 pandemic has led to a significant decrease in oil demand, while at present its total production around the world is estimated at 100 million bpd (after the March failure of the OPEC + deal) and a 10-15% decrease a strong effect that can really raise oil prices.

It should be noted that at the beginning of the year, the price of Azerbaijani oil averaged $ 65-70 per barrel, in February it was above $ 50 / barrel, but in March it averaged $ 25-30 / barrel against the background of dumping of world oil prices by Saudi Arabia, which since 8 March, entered into a “price war” with the Russian Federation and undertook to sign futures contracts, as well as export physical volumes of its oil at prices of about $ 20 / barrel and below.

The minimum price for the Russian sulphurous oil mix Urals in March was about $ 15 / barrel, and Canadian shale oil was generally trading at $ 8 / barrel.

Saudi Arabia at the beginning of 2020 produced an average of about 9 million barrels of oil per day, with real capabilities of 12 million bpd, and the Russian Federation’s withdrawal from OPEC +’s stabilizing deal on March 6 and the rejection of volume obligations since April, “pissed off” the Saudis, who decided to fill the whole world with their oil, even often to the detriment of their financial interests (Saudi Arabia has a large social program for 2020, requiring an oil price of $ 55-65 / barrel).

The actions of Saudi Arabia and the Russian Federation in March were welcomed by US President Donald Trump, as led to lower gas prices, but the protracted “war” in April began to negatively affect the US oil industry, and Trump mediated the return of major players in the global oil market to the negotiating table.

However, it is still not clear whether the United States will be represented at the OPEC + video conference on April 9th.

According to Ryan Sitton, representative of Texas (the main oil producing state of the USA), on April 8, “USA will naturally reduce oil production by at least 4 million barrels per day in the next three months.”

“I do not participate in tomorrow’s OPEC + meeting, but if I did, I would say that it is necessary to reduce the total oil production in the world by at least 20 million bpd, and the United States will reduce production by at least 4 million bpd in the next three months naturally way. If nothing is done, the oil storage facilities in the world will fill up within two months, as a result, the world will have to reduce production by at least 30 million b / d," he said.

Trump himself at a briefing on April 8 also said that US production is falling naturally, and is unlikely to be artificially reduced. But he expressed hope that a new production agreement will be reached within OPEC +, as the Russian Federation and Saudi Arabia want to correct the situation they created on the world oil market.

SITUATION IN AZERBAIJAN

As for production in 2020 in Azerbaijan, according to data provided by the Ministry of Energy, in March, the average daily production of crude oil amounted to 683.7 thousand barrels (the highest figure since the beginning of the year), but only 418.9 thousand barrels of this volume was exported (mainly via the Baku-Tbilisi-Ceyhan (BTC) pipeline).

Condensate production (from the Shah Deniz field) in March 2020 amounted to 80.2 thousand b / d, and of this volume 76.2 thousand b / d went to the BTC.

It is noteworthy that in February 2020 the average daily oil production was lower - 667.4 thousand b / d, but the export was 111.4 thousand b / d more than March - 530.3 thousand b / d. In February, condensate production from Shah Deniz amounted to 83.2 thousand bpd, of which 79.6 thousand bpd was exported.

In January 2020, the average daily crude oil production was 678 thousand b / d, and 540 thousand b / d was exported. Shah Deniz produced 91 thousand b / d of condensate and 87 thousand b / d of that was sent via the BTC.

It was a comparison of statistical data that led ASTNA to the idea that in March Azerbaijan either held export volumes until better times, or simply did not find enough buyers because of strong competition with the Saudis and the Russian Federation.

This opinion in an interview with ASTNA was indirectly confirmed by the representative of SOCAR, who said that "Azerbaijan did not manage to send the entire volume intended for export."

The decline in oil exports in the first quarter of 2020 against the backdrop of falling world prices in March led to the fact that in January-March 2020, the Azerbaijani State Fund, accumulating the country's oil revenues, received $ 1 billion 763 million from SOCAR's export of Azeri Light oil with a net average oil price for this period - $ 59 per barrel).

It is worth noting that in 2019 Azerbaijan had OPEC + obligations to keep production at an average level of 776 thousand bpd (including condensate).

At the same time, in January 2019, the country produced 720 thousand b / d of crude oil and 73 thousand b / d of condensate, and exported 598 thousand b / d of oil and the entire condensate.

In February 2019, the average daily production amounted to 722 thousand barrels of crude oil and 84 thousand barrels of condensate, of which 572.9 thousand b / d and the entire condensate produced were exported to world markets.

In March 2019, production was at the level of 714 thousand b / d of crude oil and 84 thousand b / d of condensate, and 586 thousand b / d of oil and the entire condensate went through the BTC.

In January-March 2019, SOFAZ alone earned $ 2.24 billion (about 3.83 billion manat) thanks to oil exports (average cost of about $ 70 / barrel).

SOFAZ recently admitted that its budget for the first quarter of 2020 was implemented with a deficit, which the Fund called a “normal process." However, a similar situation before was in 2015, when the economy of Azerbaijan was in crisis due to two devaluations of the manat.

Responding to ASTNA’s request how the fall in stock markets following the fall in oil prices in March 2020 affected SOFAZ’s investment portfolio, the director of the SOFAZ public relations department Jamalya Aliyeva replied as follows: “Currently, more than 80% of SOFAZ’s investment portfolio consists of valuable fixed income securities and gold. These assets are characterized by high liquidity and lower price volatility and are reliable tools during the global economic crisis due to COVID-19. International financial markets are a mirror of the global economy. If people all over the world today consume less goods and services, and companies use less of their production capacities, this means that their income is decreasing, and, as a result, this affects the price of their quoted shares. These shares are part of the portfolios of almost all institutional investors, including SOFAZ. Like other sovereign wealth funds, SOFAZ's investment portfolio records fluctuations in the stock market as “unrealized temporary losses” from short-term price fluctuations, and this will be reflected in SOFAZ operations in accordance with the Fund’s information policy.”

Thus, SOFAZ acknowledged the existence of losses, but so far claims that “there is no need for any forced sale of assets included in the investment portfolio to fulfill SOFAZ obligations”.

It is quite obvious that in April there will be not only an adjustment of the state budget-20, but also of the SOFAZ budget, since they are interconnected (the transfer from SOFAZ officially goes to the revenue part of the state budget and actually forms over 45% of the state budget revenues).

This cannot be avoided even if the April 9 consultations at OPEC + and the video meeting on April 10 of the leaders of the G-20 countries slightly raise world oil prices.-0-