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IMF Reveals Breakeven Oil Price for Azerbaijan

While the drop in oil prices is expected to keep for some time, fiscal breakeven prices continue to be high enough for oil exporting countries in the Caucasus and Central Asia region.

Fiscal breakeven prices have risen in CCA oil exporters in recent years, and countries such as Azerbaijan and Kazakhstan cannot cover government spending at oil prices below $60, reads the IMF Regional Economic Outlook updated in October.

Thus, the breakeven oil price for Azerbaijan will be $60 per barrel in 2016, while it is $75 in 2015 and exceeded $90 per barrel in 2014, according to the IMF.

The fiscal breakeven oil price is the average oil price that is needed for an oil-exporting country to balance its budget in a given year.

Azerbaijan's main export crude oil streams are Azeri BTC and Azeri Light. These two grades are fairly similar and are mainly sold to European and Asian markets. Also, the SOCAR-produced crude oil is blended in Russia and marketed as Urals blend because of its poor quality.

The average price for AZERI LT was $49.59 per barrel on October 19-23 or $2.36 per barrel less than the previous week. The average price for Urals (Ex-Novo) exported from Azerbaijan via the Novorossiysk port stood at $44.77 per barrel or $2.23 per barrel less than the previous week.

Turkmenistan has the best indices, as the IMF forecasts that the breakeven oil prices for Turkmenistan will exceed $40 per barrel in 2016. The forecast for 2015 is $45 per barrel, while it stood at $50 per barrel in 2014.

Countercyclical fiscal policies have helped many CCA countries mitigate the slowdown in economic activity in 2015, according to the IMF.

" Fiscal deficits were allowed to rise in most of them, as overall expenditure (particularly from public investment) increased or held steady, while revenue contracted from lower oil prices in oil exporters and weaker economic activity across the region.

Azerbaijan and Turkmenistan are exceptions, with projected declines in public spending in 2015, as these countries have already started to consolidate their non-oil fiscal positions in response to lower oil prices. Revenue gains from exchange rate adjustments also helped these countries, along with Kazakhstan, to reduce the necessary fiscal adjustment."

Azerbaijan, an important oil and natural gas supplier in the Caspian Sea, recorded a decrease in the prices of its oil since mid 2014. Azerbaijan's state oil fund SOFAZ has recently announced that it expects its budget for 2015 to be deficit-ridden due to the long decline in world oil prices.

SOFAZ said ast week that while drawing up the fund's budget for 2015, the basic parameters of the state budget were taken as a basis and the expected oil price was set at $90 per barrel.

"Taking into account an oil price of $50 per barrel, SOFAZ's total income, including the proceeds from the sale of oil and gas are predicted at 7.4 billion manats [$7.05 billion] until late 2015, which is 28 percent less than SOFAZ's income approved for this year," SOFAZ said.

The assets of SOFAZ, which is in charge of accumulating and managing the country's oil and gas revenues, decreased by 6.38 percent compared to early 2015 to $34.74 billion as of October 1.

Azerbaijan relies on oil for over 60 percent of its state revenue and 92 percent of export earnings. Azerbaijan based its 2014 budget on an oil price of $100 a barrel and in the 2015 budget, the oil price was set at the maximum price - $90 per barrel.

However, the government made a drastic cut in its 2016 budget revenue forecast, forming it at the oil price at $50 per barrel and an exchange rate of 1.05 Azerbaijani manat to the U.S. dollar.


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