Oil over $100 has two faces for Ecuador

Oil continues to climb and what, in principle, may seem like a better economic scenario for Ecuador, being a producer, the consequences in the pockets of citizens could also be felt, if costs remain high for a long time. Yesterday it hit $119. Last Sunday it hit $127, the highest since 2008.

The higher price of oil will give more money to the Treasury this year.

Being a raw material, the increase in the price of oil can mean increases in products that have already risen in value in recent months. For example, super gasoline will continue to climb, according to marketers. But there is more: plastic, fertilizers, among other inputs may be affected in the coming weeks.

• From $1.5 billion to $2.5 billion more to the government:  Finance Minister Simón Cueva said that for every additional $1 per additional barrel there would be $80 million in gross revenue or $50 million in net revenue (minus mandatory spending on oil imports). oil, subsidies and other assigned expenses). All of that would translate into $2.5 billion in additional revenue, said Siobhan Morden, fixed-income strategist for the region at investment broker Amherst Pierpont Securities, as long as costs stay the same. Analyst José Orellana calculates $1.5 billion more. The money can be used to lower the fiscal deficit and invest in works.
• Higher fuels:  The first natural effect that consumers’ pockets will feel is the increase in fuel prices. In the case of Ecuador, the price of a gallon of super gasoline is expected to rise above $4, according to distributors, starting this Saturday, March 12. Other productive sectors may feel more expensive oil.
• Expensive plastic for longer: Another effect that can hit the different production chains is the price of plastic. Resins and polyethylene (raw material for plastic bags) are already at very high levels since last year and the current situation can keep the price up for much longer, assured Jorge Mortola, president of the Ecuadorian Plastics Association. (Aseplas).
• Freight and high airfares:  One of the factors for the higher cost of freight and the logistics crisis had been the higher price of oil and an even more expensive price could mean higher prices for this item, which already worries importers and exporters. local. Likewise, the higher price of oil can translate into higher airfares, as it translates into a higher cost of gasoline for airplanes, Orellana assured. Also some supplies for construction may also be affected.
• Agricultural products, on the rise: “The cherry on the cake”. This is how the former president of the Area Chamber of Agriculture, Rodrigo Gómez de la Torre, defines oil above $100. Fertilizer prices were already high. Countries like China and Russia had already expressed their intention to stop exporting urea, a key fertilizer, to protect their food sovereignty, and the situation further aggravates the scenario, which can reduce agricultural productivity.   
• More spending on subsidies:  According to the calculation of the 2022 proforma, Ecuador will allocate $1,328 million in 2022 to fuel subsidies in the country. This value was calculated with a price of a barrel of oil of $59.20. In this context, if the price of crude almost doubles, the value of what the treasury allocates to that concept can also double. Diesel and ecopaís and extra gasoline still have the state benefit.
• Other raw materials rise: The higher price of oil has not come alone. In general, energies have risen in price. To this is also added the increase in other raw materials, such as agricultural products. For example, yesterday, US wheat futures rose above the allowed limit and approached an all-time high, on fears global supply would be compromised until the conflict between Russia and Ukraine is resolved. Other products such as paper have also increased so far this year.