The “punishment” of the price of Ecuadorian crude against the price of WTI has been increasing sharply in recent months. According to data from the Central Bank, while in January 2021 the differential (a price difference that is applied above all due to the quality of crude oil) was -$3.6; in December of the same year, it worsened, reaching -$12.
The gap, which does not allow Ecuador to take full advantage of the high prices that are now generated worldwide, is accentuated by several factors. First of all, futures prices are skyrocketing, while actually billed prices are not moving at the same pace. In addition, the good differentials that have been achieved through sales spot help, but the greater weight in the spread is in contracts with Asians, which show worse results due to the calculation formula applied.
In accordance with Fernando Santos, former Minister of Energy, the more the price of WTI rises which, for example, yesterday was at a historical maximum of $116.57, maximum in 13 years and six months, the negative differential with the Ecuadorian widens.
Santos explains that there are two segments in the oil market: the physical market and the speculative market. In the physical, the barrels that leave a producer are traded to a refiner; while in the speculative market there are investors who buy barrels in the future and then trade those papers. The speculative market appears in the Bloomberg indices at Platts. It states that it is such a speculative market that while physically producing 2 million barrels of crude oil per day, some 500 million barrels per day are traded on paper. If crude oil rises enormously due to speculation, the physical market rises at a slower rate.
Second, the price of Ecuadorian crude, which is set through spot sales. Petroecuador has constantly announced the good results of said sales, as a mechanism to improve the price. However, it is not possible to reflect these good negotiations because most of the crude sold is committed to Asian companies. A formula is applied to these that is always below the spot price.
This newspaper had access to a table official Petroecuador which establishes the differential in spot sales and the differential in Asian sales. For example, in November 2021 the spot spread for Oriente crude was -$4.60, but in the long-term contracts of Asian companies the spread was -$7.48, that is, $2.80 of harm to the country. Meanwhile, in December the spread had widened: in spot sales it reached -$9.50, but in Asian long-term contracts it reached -$12.20, that is, a loss of $2.70.
The The gaps are deeper when it comes to the spread on Napo crude: in November the spot spread was -$3, but in Asian companies it was -$8.37 (loss of $5.37); As of December, the Napo spread with spot reached -$7.11, but in contracts with Asia it was -$13.29 (gap between one and the other spread of $6.18).
In any case, it was unofficially known that if spot sales were not made, then those prices would be worse.
The crude oil market is changing. According to technical data from Petroecuador, there are exogenous factors that impact the general behavior of the different crudes. In the case of spot, one of the reasons that determines the prices is the available volume, the time for the contests, the spreads published for Napo and Oriente in the Platts indicator. For the Asian differential case, there is a factor that harms these differentials and it is the behavior between the WTI and the basket of ARGUS and ASCI crude oils.
At the moment, spreads are recovering. On February 28, theoretical prices were $ 88.63, which represents a difference of -$7.50 when compared to the WTI price of the same date, which had been placed at $96.13.
On the other hand, the billed price of crude oil in Ecuador, which is visibly affected by Asian contracts, is also the one that is taken into account for the payment to private companies made by the Ministry of Energy. This also results in a new affectation to the income of the State. Both for the latter case and for the market in general, Santos believes that if the Government were to effectively untie crude oil from debt contracts with China, then the spot formula could be used directly for the various marketing contracts and thus earn at least $3 per barrel. (I)
Source: Eluniverso
Paul is a talented author and journalist with a passion for entertainment and general news. He currently works as a writer at the 247 News Agency, where he has established herself as a respected voice in the industry.
