What if the oil goes up to $ 100?

Ecuadornews:

Since the fuel price hike was announced, the debate has focused on how the government compensates taxi drivers and transporters who threaten street protests, but nothing has been said about the mechanism that Petroecuador is using to fix the cost of the super and the diesel. A system that, for some analysts, would be handled discretionally, and that leaves the door open to new increases in values.

Last August, the cost of the super gallon went up from $ 2.34 to $ 2.98. However, the last Executive Decree 619, which outlines the reduction of subsidies for fuels, gave the power to the state oil company to set monthly values ​​for both products. That led to the cost of the gallon again rising again from $ 2.98 to $ 3.10 at the end of December.

From what is known, the reference base for setting the values ​​is the international oil price, but to that the state must add other logistics costs such as freight and profit margins. However, says Francisco Swett, former finance minister, the mechanism remains unclear. It has not been said with which company the purchase of fuel is contracted, nor the contract conditions. “I suspect that there may be a serious negotiation in the purchase, because those prices that are now sold are well above what, I see, is quoted in the foreign market.”

The new scheme, he notes, also obviates the creation of an accumulation fund that can be used to give a balance to prices, should crude oil rise too high. “If tomorrow the barrel of oil goes up to 100 dollars, then the premium gasoline instead of costing 3 dollars, here they could sell it in 4.50. That’s what they’re telling us, “says Swett.

The analysts also refer to the discretionality in which the State would be falling when it comes to setting the new values. The question is whether the fuels you buy are really the best option, or if there are cheaper and better quality products than those that are being sold locally.

This newspaper consulted the Ministry of Energy and Non-Renewable Natural Resources, to have more details on the subject of setting the new prices, but it was not possible. For René Ortiz, former general secretary of the Organization of Petroleum Exporting Countries (OPEC), putting Petroecuador as the market regulator is to go back and move away from the objective of moving the national economy towards a free market. If it has already been decided to release the prices of these fuels, the best thing, he explains, is to put an end to the monopoly that exists in the importation of fuels. “The ideal is that each marketing company, the Exon Mobil, the Primax, bring their fuels. Just as industrialists are allowed to buy their diesel, they should liberalize the importation of these products, “he says.

At the beginning of January, Petroecuador decided to re-fix the super at $ 2.98, but for February it is expected to make a new revision. The same must be done with diesel for sale to the public, from January 15 next.

The detail:

Historical reform

The review of the reduction of subsidies is a policy that came to be taken after 40 years of delivery of this benefit. (I)

Source: https://www.expreso.ec/economia/petroleo-sube-100dolares-barril-economia-petroecuador-AB2560705