Minister: ’70 and 80 is a reasonable price ‘

Ecuadornews:

Ecuador, the smallest member of the Organization of Petroleum Exporting Countries (OPEC), believes that an amount per barrel of crude between USD 70 and 80 is a reasonable price. Last week the price of WTI, which serves as a reference for the sale of Ecuadorian crude, reached USD 75 per barrel and even some market voices spoke of the possibility of reaching 100 before the end of the year.

Yesterday it closed at USD 74.29. Among the reasons are the sanctions that the United States announced that it will apply to Iran from next November 4 and that will imply the exit of the market of between 500,000 and 2 million barrels of oil per day.

Added to this is the drop in Venezuela’s crude production. It is expected, according to a report by Eleconomista.es, that the US slow down the growth of its production of fracking (fracturing of shale rock to obtain hydrocarbon) due to technical limitations, since the rapid growth of production collapsed its oil pipelines. All this, while demand continues to grow steadily.

A price of USD 100 is an ideal scenario for oil producing countries, whose income depends on the sale of hydrocarbons. But Ecuador’s energy minister, Carlos Pérez, says he does not “be so optimistic” about the evolution of the oil price market. “It depends on who you talk to (about the price projection).

They go from USD 70, 80 and there are some banks that are projecting up to 100. I’m not very optimistic in that sense, but I think that between 70 and 80 is a reasonable number, “said the Minister Miriam Grunstein, analyst and academic at the James Baker Institute at Rice University, called the claims that the crude will reach USD 100 as “reckless.”

“To say that the price will rise 25% because 2 million barrels will be withdrawn from the market does not seem responsible to me,” she said in a recent interview with CNN.

The expert argued that to reach these levels, “another supply crisis” should occur, which is not currently being configured. She warned that other market players, such as Saudi Arabia or even countries outside OPEC, such as Brazil or Russia, can fill the space left by Iran. In fact, Saudi Arabia offered last Thursday to replace the Iranian production that leaves the market. The price of crude oil is a key variable for Ecuador, since it will determine the amount of revenue that the Treasury will have to face its expenses next year.

The Ministry of Finance must submit until next November 1 the Proposed budget for 2019 for approval in the Assembly. Walter Spurrier, director of the economic publication Análisis Semanal, believes that the country should be prudent when defining the oil figures, considering that the energy market is going through a situation of high prices.

“The current price is a problem, because the budget has been made in recent years based on the price of oil that marks the futures market at that time.” Another factor that should be taken into account, according to Spurrier, is that Ecuador accumulated debt with its oil contractors in the years of low prices, so important transfers must still be made.

With this, it is foreseeable that the Treasury will receive less oil revenues.

“We are not dazzled by the new price,” he said. The only year in which the Treasury hit the price of oil in the last decade was 2016, when it considered a value of USD 35 per barrel for the Pro forma and the crude was sold at that average.

The national oil production has not accompanied the high price. Between January and September of this year the national pumping of crude oil (private and public) fell 3.5% compared to the same months of last year. Only the public one was reduced 5%.

The Government seeks to raise these figures with private investment. Last Friday signed six contracts with oil companies that committed USD 1,622 million. Minister Pérez said last Friday that they expect to finish 2018 with a daily production of 540,000 barrels of oil and next year, with 590,000 barrels. (I)

Source: https://www.elcomercio.com/actualidad/ministro-70-80-precio-razonable.html