Surge in oil prices will help economy but production must increase, experts say

May 11, 2018

Ecuador appears poised to take advantage of rising oil prices but both the government and private analysts say it must increase production to gain the full benefit.

The Esmeraldas oil refinery processes about 40% of Ecuadorian crude.

On Thursday, the price of West Texas Intermediate Crude (WTI) hit $71.63 a barrel, the highest since November 2014. With international oil reserves drawing down and political tensions rising in the Middle East, most experts see prices going even higher in coming weeks and months.

“There are a number of factors contributing to the increase and they don’t show any signs of going away,” says Edmundo Brown, former executive of Petroecuador and oil industry analyst. “Unfortunately, one the factors is political instability in oil producing countries and this will probably get worse before it gets better.”

Brown cautions, however, that Ecuador needs to increase its investment in oil production infrastructure to take full advantage of higher prices. He also says that production must increase.

In the February, Ecuador produced 513,000 barrels of oil per day, below its allotted OPEC limit of 520,000. “We must produce at the limit and be ready to increase the amount when the (OPEC) restrictions are lifted. We should produce 540,000 barrels but to do that we must make upgrades at the refinery and at other points in the supply chain.”

Carlos Pérez, Ecuador’s hydrocarbons ministry, agrees with Brown. “We are aiming at the 540,000-barrel daily production goal, and even higher, but have work to do before we get there,” he says, adding that a $700 million investment by Petroamazonas in the in Sacha block 43 oil field may provide the needed boost.

Although economists say higher oil prices will be a boon for the economy, they say the benefit will not be immediately visible. “Most revenue going to the government is earmarked for debt payment and pre-orders,” says Ronaldo Estes, a University of Guayaquil economics professor. “Those who expect a short-term influx of new funds will be disappointed.”

He adds: “The good news with higher prices is that the debts will paid off sooner and that money will be available sooner to finance government projects.”

On average, the market price for Ecuador crude is four to seven dollars lower than the WTI benchmark due to its heavy consistency.

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