Ecuador’s country risk one of highest in region due in part to collapse of oil prices

Posted on January 19, 2016 • Filed under: Economy, Ecuador, Oil

IRAN COMING INTO THE WORLD OIL MARKET TO PUT FURTHER PRESSURE ON OIL PRICES reported the end of international sanctions against Iran, which became effective last Saturday (January 16, 2016), also assumes the termination of this nation oil embargo. Iran will play a decisive role in the energy market and expects to quickly increase their current production of 2.8 million barrels a day, between 600,000 and one million barrels more. By the end of 2016 expects to produce a total of 4.2 million. However, this could cause a further drop in oil prices, already weakened in a market with surplus production and weak demand. The current supply of crude oil is around 80 million barrels per day and the price for the type crude West Texas Intermediate (WTI) closed at the end of last week at USD 29.42, its lowest since November 2003. For its lower quality, the estimated price of a barrel of Ecuadorian crude is around USD 22 as Petroecuador, and may continue to fall if international markets perceive the return of Iran as an input to further raise the oversupply of oil in the world. In fact, bags of Persian Gulf oil monarchies yesterday recorded heavy losses by the prospect of return from Iran. At the start of the trading week in the Gulf, the stock Riyadh (Saudi Arabia), the largest in the region, fell by 5%. The evolution of oil prices and the country risk of Ecuador Ampliar But in addition to the reduction in revenue for Ecuador and the accumulation of debts with private oil companies, the collapse in oil prices in the last four months it has been accompanied by an increase in country risk index, which becomes more expensive financing you can get the country in international markets. Secretary of Fiscal Policy Observatory, Jaime Carrera explains that the country risk index reflects long-term debt holders have to respect Ecuador if the state will not be able to afford or vision. That is, that the higher is this index, holders think that increase the likelihood that the country fails to comply with their payments.


As a result, funding for Ecuador becomes more expensive and country risk on Friday reached 1678 points, Carrera considers that the State would have to pay 16% interest if issued debt in the international capital market. He adds that although race is not the only factor influencing country risk, the oil price is an important element for change. This is because down the barrel of crude affects public finances, representing less revenue for state investments. Also suitable fewer dollars to the economy and the same oil sector has fewer resources to invest and sustain or increase production. All these elements contribute to a negative perception of the economy and thereby increase the country risk index, according to Carrera. That is, the possibility that Ecuador can not pay your debt. A high country risk also affects the private sector because companies find it hard to fund conditions and, in turn, reduce their investments and generate less jobs. Professor of Economics at the International University, Jaime Cabezas, believes that with the increase of Iran’s oil production the price will continue to fall. This indicates that there will be a war to capture market between Iran and Arab producers, due to its geopolitical confrontations. Indicates lower oil revenues, the government deficit will widen further and any type of financing will come in much harsher conditions. In this context, the market perceives that Ecuador can not pay their debt and thus may continue to rise in country risk index. Among the countries in the region, Ecuador is one of the nations with the highest level of country risk. Amid the announcements of the end of sanctions on Iran, multinational oil and gas look favorably on this measure, which will allow them to invest in this country rich in energy resources, but low living are cautious by the hour oil market. Read Article


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