Between the bear and the bull: which path is Azerbaijan choosing? Caliber.Az analysis

On the eve of trading at the Intercontinental Exchange (ICE) in London, January Brent crude futures rose 1.73%, reaching $63.46 per barrel. Experts attribute this modest uptick to the market’s reaction to last Sunday’s announcement: OPEC+ member states plan to keep oil production steady in the first quarter of 2026, maintaining quotas at December 2025 levels.

In recent months, bearish trends have dominated the oil market. Both Brent and the U.S. benchmark WTI have faced significant downward pressure for four consecutive months—the longest stretch of decline since 2023—driven by expectations of rising global hydrocarbon supply.

Since the beginning of spring, the world’s leading oil exchanges have faced significant pressure from global economic stagnation and the U.S.’s tariff disputes with China and the EU. Falling demand and other economic factors have reinforced bearish trends in the oil market, briefly interrupted only by the Indo-Pakistani conflict in May and the 12-day Iran–Israel war in June. However, high market volatility quickly returned prices to their previous trajectory.

Throughout the year, the key economic factor influencing oil prices has been the policies of the eight leading OPEC+ member countries. These nations have repeatedly discussed the possibility of gradually increasing production, arguing that higher supply would meet growing demand. According to Bloomberg, one scenario considered an increase of 411,000 barrels per day—three times higher than initial plans and roughly 1% of current OPEC+ output.

Saudi Arabia, which suffered the most under OPEC+ production restrictions, has been the main proponent of raising output, aiming to recover its losses. The cartel first announced concrete plans at the end of Q1 2025, and by April–May, oil prices had already dropped noticeably, reaching pre-2024 lows. Against this backdrop, the market experienced high volatility from August to November, with an extended period of downward pressure on prices.

However, several non-OPEC+ countries—including Brazil, Guyana, Iran, Canada, and the US—have also influenced price dynamics. In this context, the cartel even raised its forecast for the growth of liquid hydrocarbons (LHC) supply from non-OPEC+ countries in 2025 to 920,000 barrels per day (b/d).

The U.S. retains the greatest growth potential: at high prices, shale oil production in the US could increase by 300,000–400,000 b/d in the first half of 2026. Canada could also become a key non-OPEC+ player in the oil market in 2026, thanks to the expansion of the Trans Mountain pipeline, which has nearly tripled the country’s export capacity—from 300,000 to 890,000 barrels per day.

Against this backdrop, analysts warned that oil prices could fall further than OPEC+ members had anticipated by early next year. According to estimates from the U.S. Department of Energy, if current trends persist, Brent could drop to $54 per barrel in the first quarter of 2026 due to rising global oil inventories.

In response, on November 2, the eight OPEC+ members—Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman—announced plans to suspend any increase in oil production in Q1 2026, with only a minor rise scheduled for December. Kazakhstan, Iraq, and Oman, however, are required to reduce production in December to offset quota exceedances in 2023. For Q4 2025, the “eight” planned a modest production increase of 137,000 b/d, noting that, depending on market conditions, they could gradually return—partially or fully—to previous cuts.

Finally, the question of production quotas was formally confirmed last Sunday during the 40th meeting of OPEC+ ministers, held online. Azerbaijan’s Minister of Energy, Parviz Shahbazov, also participated in the virtual session, expressing support for the decision to maintain a stable daily crude oil production level through the end of 2026 and for the mechanism to assess Maximum Sustainable Capacity (MSC).

The meeting reviewed the global oil market situation, production levels, and the fulfilment of compensation obligations, and approved the MSC assessment mechanism developed by the OPEC Secretariat. This mechanism will serve as a benchmark for determining the baseline production level for 2027 in countries that have signed the cooperation declaration. The parties agreed to hold the 41st OPEC+ ministerial meeting on June 7 next year.

The global market reacted to the cartel’s meeting, where the intention to maintain production levels at the early-November agreed-upon level was confirmed, with a rise in January Brent crude futures: prices increased by almost two per cent, reaching $63.46 per barrel.

Among other things, the “freeze” on production quotas in the first quarter of next year gives OPEC+ some time to assess rising geopolitical risks to supply and the cartel’s possible response. Such risks have notably increased in recent days. According to Reuters, instability was reflected in attacks on two tankers carrying Russian oil off the Black Sea coast.

The energy market also responded to the suspension of oil exports by the Caspian Pipeline Consortium (CPC), whose shareholders include Russian, Kazakh, and American companies. It is worth noting that the CPC transports over 1% of global oil. On November 29, following an attack by Ukrainian maritime drones (unmanned boats), the CPC’s mooring equipment in the Black Sea was damaged, and the terminal temporarily halted operations.

The oil market is also reacting to rising tensions between the US and Venezuela. On November 29, US President Donald Trump stated that airspace over and around Venezuela should be considered closed, adding uncertainty given the country’s role as a major oil producer.

If the conflict in Venezuela escalates into an active phase, combined with renewed attacks on tankers in the Black Sea and on the Novorossiysk terminal, it could significantly influence global oil price dynamics—an outcome currently not intended by the US or the EU. Washington, which recently imposed sanctions on Rosneft and Lukoil, aims to sharply limit shadow Russian oil exports to China and India through customs tariffs, while also pressuring Türkiye to refrain from such purchases.

In today’s complex and conflicting circumstances, it is difficult to predict who will prevail in the “bear versus bull” struggle and what global oil prices will be over the next six months. As for Azerbaijan, the country clearly supports OPEC+ policies aimed at preventing the global oil market from sliding toward a price bottom.

Due to natural depletion in Azerbaijan’s main Azeri–Chirag–Gunashli (ACG) field, developed since the late 1990s, there is a clear trend of declining oil production. By comparison, in 2010, total production from ACG, condensate from the Shah Deniz field, and liquid hydrocarbons from other sites reached a historic peak of 50.83 million tonnes.

This year, Azerbaijan’s oil and gas condensate output is projected at 28.5 million tonnes, 2.1% below last year’s actual figure. Forecasts indicate production will fall to 27.6 million tonnes in 2026, 3.2% lower than this year’s projected level, then to 27.1 million tonnes in 2027, and 26.6 million tonnes in 2028.

According to cartel data, Azerbaijan’s oil production quota under the OPEC+ agreement for 2025 is 551,000 b/d. However, actual average daily production in October this year was 461,000 b/d—90,000 b/d below the quota. Naturally, this shortfall negatively impacts the country’s export performance. Against this backdrop, OPEC+ efforts to restrain oil production to some extent help maintain global prices at an acceptable level, which is extremely important for Azerbaijan. By sacrificing some production volume, the country can partially offset the loss through stable prices.

Nevertheless, current prices are somewhat below the $70 per barrel oil price embedded in Azerbaijan’s 2025 state budget. Under a conservative scenario and given global risks, the government intends to lower the “cut-off price” used to calculate oil revenues for the coming year. In the published forecasts for Azerbaijan’s 2026 state budget, this parameter has been reduced to $65 per barrel.