Global oil markets have remained below the USD 70 per barrel level for more than a month — the benchmark price embedded in Azerbaijan’s 2025 state budget. Given the current supply–demand balance, analysts expect prices to stay within this range through the end of the year, barring major disruptions. The latest decline came after traders reacted to news of rising U.S. strategic reserves: Brent fell below USD 65 per barrel, while Azeri Light continued to trade at roughly USD 2 above Brent.
According to the American Petroleum Institute (API), U.S. commercial crude inventories rose by approximately 4.4 million barrels in the week ending November 14, accompanied by increases in gasoline and distillate stocks. A Wall Street Journal survey published by MarketWatch indicates that analysts expect a third consecutive weekly build in crude inventories based on upcoming U.S. Energy Information Administration (EIA) data. Both the API figures and anticipated EIA numbers reinforce concerns about oversupply and confirm that the world’s largest oil consumer is sufficiently stocked through year-end.
Forecasts for 2026 also offer little support for price growth. The International Energy Agency (IEA) expects the market to enter next year with a larger-than-anticipated surplus, with supply significantly outpacing demand. U.S. crude production reached record levels last week despite slower drilling activity, while new data from China shows that the world’s largest importer has used the recent price decline primarily to rebuild strategic and commercial reserves rather than increase refinery runs. According to Reuters’ flow analysis, combined domestic output and imports in China exceeded refining throughput by roughly 690,000 barrels per day in October — another monthly surplus that has added around 900,000 barrels per day to stocks since March.
This pattern — buying additional crude during price declines and channeling it into storage — absorbs part of the global surplus but highlights a lack of growth in end-use fuel demand. Refineries prefer storing over selling. Against this backdrop, investment banks have adopted more cautious expectations. The latest Goldman Sachs forecast projects a surplus of around 2 million barrels per day in 2026. The bank anticipates the launch of delayed long-term projects, the unwinding of most remaining OPEC+ cuts, and further production growth in the United States and Brazil. Under these conditions, Goldman Sachs expects Brent to average around USD 56 and WTI around USD 52 in 2026 — well below current forward prices. Updated IEA projections point to an even larger potential surplus if demand growth underperforms.
Despite worsening fundamentals, OPEC+ approved another modest output increase of 137,000 barrels per day in December — the third consecutive monthly rise. Observers note that the group prioritizes internal cohesion rather than sacrificing volumes to defend higher prices. Recent geopolitical events have also failed to produce lasting price effects. Ukrainian strikes on the Novorossiysk terminal, Iran’s seizure of a large oil tanker in the Gulf of Oman, and the shutdown of a pipeline in conflict-torn Sudan all caused brief disruptions but no sustained price reaction. Similarly, U.S. sanctions on Rosneft and Lukoil — which have reduced Russian exports to roughly 3.4 million barrels per day and left 11 tankers idling off India’s coast — have not significantly moved global prices.
Under these conditions, Azerbaijan’s oil revenues for 2025 will likely fall short of earlier projections, which assumed an oil price of USD 70 per barrel. Reflecting global trends, the government adopted a more conservative approach in the 2026 draft budget, setting the expected average oil price at USD 65.
During parliamentary discussions, Finance Minister Sahil Babayev announced that the transfer from the State Oil Fund of Azerbaijan (SOFAZ) to the state budget will decrease by 1.7 billion manats in 2026. Total budget revenues are projected at 38.6 billion manats, of which 22.2 billion manats — 57.4% — are expected from the non-oil sector, an increase of 2.1 billion manats (10.6%) compared with this year. According to government estimates, 88% of current expenditures will be covered by non-oil revenues. These revenues include 13.3 billion manats from tax authorities, 6.9 billion from customs, 1 billion from paid services of budgetary institutions, 531 million from other sources, and 450 million from dividends.
Oil and gas revenues for 2026 are projected at 16.4 billion manats, representing 42.6% of total budget income. Of this amount, 3.6 billion manats will come from international consortia and SOCAR, while 12.8 billion manats will be provided through the SOFAZ transfer. Babayev noted that the planned reduction in the transfer aligns fully with the government’s strategy of preserving the Fund’s reserves and implementing the medium-term “roadmap” to reduce economic dependence on hydrocarbon revenues.
Economy Minister Mikayil Jabbarov added that since 2028, non-oil export revenues have nearly doubled, and current economic growth is being driven entirely by the non-oil sector. This underscores the increasing importance of diversification amid deteriorating external price conditions.
Reconstruction of the territories liberated after 2020 remains a major expenditure priority. In 2026, 3.5 billion manats — 8.4% of total spending — will be allocated for these purposes. Since late 2020, the government has directed 17.6 billion manats toward rebuilding efforts, and this figure is expected to reach 22 billion by the end of the current year. The 2026 draft budget and the three-year expenditure framework continue to assign high priority to financing these projects.
As the global oil market shifts into structural surplus and price expectations decline, Azerbaijan is moving toward a more conservative fiscal stance — reducing reliance on SOFAZ transfers, expanding the role of non-oil revenues, and maintaining large-scale investment in reconstruction. While key macro-budget indicators remain sensitive to oil price dynamics, the evolving revenue structure and diversification strategy help reduce the economy’s exposure to external shocks.
