Caspian oil producers prepare tight 2017 budgets
Published on Monday 26 September 2016 Back to articles
Written by one of our Caspian experts, this months edition of Caspian Focus strongly reflects the oil weariness that many producers across the world are currently facing. With a reliance on hydrocarbons and as Caspian oil producers prepare tight 2017 budgets, it’s clear that yet another regional giant of the oil world questions the next few years of the industry. At the exact moment of writing this introduction, and publish the article, talks are in session between OPEC member states in Algiers around the possible reduction of oil production in light of the diminishing barrel price. Much hangs in the market over a global stance between both OPEC and non-OPEC members, as to what to do next to try and fan the flames under the floundering industry once more.
To read more on the article below, then why not sign up to our Caspian Focus publication. Or if you have a particular interest in the oil industry or the region, then why not talk to one of our experts.
Tightening the budgets for 2017
Most market analysts agree that oil prices are unlikely to strengthen significantly this year or next, thanks to stable or rising production, abundant inventories and weak demand from China and India. Goldman Sachs believes that Brent crude will trade in the range of US$45–50 a barrel during the next 12 months, compared to its May forecast of US$50–53. IOCs’ capex cuts will have a delayed effect as past investments progressively come online. This pessimistic outlook is widely shared throughout the investment banking community and by the Paris-based International Energy Agency (IEA).
Lower oil prices and export revenues result in lower-than-average public spending, weaker domestic currencies, diminished purchasing power and the higher risk of social unrest. All the Caspian states face similar challenges because of the dominant role that hydrocarbons play in their economies.
The Kazakh Ministry of National Economy has drawn up a basic scenario for 2017–19 based on a US$35/barrel average price of Brent crude, increasing to US$45 by 2021. The domestic currency, the tenge, is expected to weaken from the current KZT340 to the US dollar to KZT360 between 2017 and 2019. The exchange rate was KZT180 = US$1 between early 2014 and August 2015, when the authorities shifted to a free-floating policy. Even as the price of oil recovers the tenge is not expected to strengthen much because the government wants to keep the public deficit low, which explains the need for a cheap tenge.
Russian economic development minister Alexey Ulyukaev told the Far Eastern Economic Forum on 3 September that the 2017–19 budget is predicated on an oil price of US$40/barrel compared with US$50 for 2016. Russia’s GDP, initially expected to grow by 0.5% this year, is instead expected to decline by around 0.2%.
