Low oil production in Ecuador makes it difficult to take advantage of the so-called 'supercycle' in the price of crude oil

According to analysts, the price of crude oil would remain at up to $75 this year. It is suggested to invest in increasing Ecuadorian production.

In the oil world, some call it a “supercycle” and others just “a period of high prices.”The truth is that these days the price of crude oil is increasing significantly.and well above calculations that were made in 2020 and that predicted a low price for at least two years.

Although the increase in prices is good news for the fiscal coffers, there is uncertainty about whether the country could take advantage of the bonanza, since right now it is experiencing a period of falling oil production and lack of investment.

Thus, today the WTI, which is the marker crude oil for the price of Ecuadorian oil, has surpassed the barrier of $60 per barrel and Petroecuador reports that the estimated (theoretical) national price in February reaches $57.52, that is $20 above what was programmed by the Ministry of Economy and Finance ($37 dollars). The international price could reach $75, according to various analyzes by investment banks such as Goldman Sachs, JP Morgan, Morgan Stanley and Barclays. Other studies talk about up to $100.

However, production continues to decline. This February 23, the reported production was 500,000 barrels per day, between the state company and the private companies. That figure is less than the 530,000 barrels that were available before the pandemic.

Xavier Orellana, economic analyst, recognizes that these days international banks have spoken of a probable “supercycle” (very high prices for an extended period) of raw materials, including crude oil and copper. However, he is not very convinced that this is the case, at least on the oil issue. It indicates that the price of crude oil could rise between $60 and $70, but this could trigger shale oil production (which becomes profitable with a higher price). Faced with the greatest supply, the price may drop or remain in that range.

He explained that the current increase is due to the fact that vaccines to combat the coronavirus are already beginning to work globally. However, there is no such important catalyst to sustain the supercycle, unlike what happened when China was growing at 10% annually.

In any case, consider that the priceof Ecuadorian crude oil could be in the order of $53, which gives it a positive difference of $16 per barrel with respect to what was budgeted by the Ministry of Economy.

Nelson Baldeón, geopolitical analyst, does not really see a price supercycle, as he remembers that in 2012 to 2014 there were prices of up to $150, well below what is happening now. However, he does believe there will be a period of high prices of up to $75 a barrel.

Consider thatThis is tied to the decisions made at the beginning of the month by OPEC Plus.In this sense, we must be aware of whether Arabia continues with the cut of one million barrels; if Russia decides to continue at the same level of production as until now, and if the United States increases its demand for crude oil and fuels.

For Ecuador, this increase can be seen from two perspectives, explains Orellana. On the one hand, the increase may represent more resources although at this time Ecuador has low production, due to lack of liquidity and investment and therefore could not effectively take advantage of the bonanza of the best price.

According to Orellana, currently the two final candidates for the Presidency are talking about increasing production, so that it rises from 490,000 barrels per day to between 750,000 and 800,000 barrels per day. But, he says, it's not clear how they will do it.

Meanwhile, from the other shore,The rise in the price of crude oil represents the increase in derivatives such as gasoline and diesel.This, with the current band system, will produce a sustained increase in prices for the consumer and the subsidy will still remain within a certain range.

ForBaldeón, it would be important for Ecuador to now seek to increase production to take advantage of this period of higher prices.Considers that priority should be given to an issue that will generate resources andFor example, pay those $200 million that is currently owed to Petroecuador,as long as the company exhibits a good investment plan that allows increased production.