S&P expects increase in Azerbaijan's oil production

Azerbaijan's crude oil production will gradually resume to 2019 levels of 713,000 barrels (bbl) after April 2022, when the current OPEC+ production deal is terminated.

Report informs citing an article of S&P Global Ratings on the sovereign ratings of Azerbaijan.

In line with Azerbaijan's compliance with the OPEC+ production cut agreement in April 2020, S&P expects that the country's daily crude oil production (excluding condensate) will average about 610,000 barrels (bbl) in 2021, broadly in line with the 2020 level.

"The January 2021 OPEC meeting confirmed the alliance's cautious stance in relation to an increase in production levels in the face of uncertain pandemic developments and their impact on oil demand. Our assumptions are subject to uncertainties in relation to global demand dynamics and how quickly Azerbaijan can return to its full production capacity," the S&P article reads.

In line with S&P's oil price assumptions and Azerbaijan's compliance with the OPEC+ production cut agreement, it is expected that the current account balance will run a marginal surplus in 2021, before rebounding to an average surplus of about 4% of GDP over the remainder of S&P's forecast horizon through 2024.

"The launch of the SDII [Shah Deniz 2] gas project and its expansion over the next three-to-four years should also support Azerbaijan's external performance. Partially offsetting this, our projections also reflect a rebound in imports on account of higher domestic consumption and the government's planned reconstruction activities in Nagorno Karabakh. Due to a substantial decline in hydrocarbon exports, we estimate Azerbaijan's current account deficit at about 3.7% of GDP in 2020 compared with the strong surplus of 9.1% in the previous year," the S&P said in the article.

"Despite oil-driven external volatility, Azerbaijan's strong external balance sheet will remain a core rating strength, reinforced by the large amount of foreign assets accumulated in the sovereign wealth fund SOFAZ. We estimate external liquid assets will surpass external debt by 90% of current account payments in 2021, and will remain broadly stable through 2024. Azerbaijan will remain vulnerable to potential terms-of-trade volatility. Nevertheless, in our view, its large net external asset position will serve as a buffer to mitigate the potential adverse effects of economic cycles on domestic economic development," the agency added.