Quito (Ecuador), London: Ecuador has dealt a blow to Organisation of Petroleum Exporting Countries (Opec) unity by announcing it will start raising oil production this month, arguing it needs the money.
Opec has for years cheated on its own agreements, particularly when oil prices fail to recover after an output cut. But Ecuador has taken the rare step of saying publicly it will increase production, making it impossible for the group to conceal the desertion.
The Latin American country won’t be able to meet its commitment to lower output by 26,000 barrels a day to 522,000 a day, as agreed with Opec last year, Oil Minister Carlos Perez said in an interview with Teleamazonas late Monday.
“There’s a need for funds for the fiscal treasury, hence we’ve taken the decision to gradually increase output,” Perez said. “What Ecuador does or doesn’t do has no major impact on Opec output.”
Indeed, Ecuador’s exit is largely immaterial when considering the size of the global oil market, as the amount it agreed to cut accounts for less than 25 seconds of daily consumption. Still, it does create a dangerous precedent in Opec, opening the door for other, perhaps bigger producers to follow suit.
“Ecuador’s latest statement will not matter for global balances but it shows the challenges for Opec members given the cuts failed to raise prices,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd, a London-based consultant. The announcement may “again give rise to fears of the deal falling apart,” she said.
Ecuador isn’t the only Opec member struggling to bolster its finances, with others such as Algeria also relying heavily on petrodollar reserves built up during the 2000-2008 oil-price boom to plug large fiscal deficits. Many producing countries require prices significantly higher than today’s sub-$50 (Dh183.65) level to balance the books, according to a study by the Council on Foreign Relations, a non-partisan think-tank based in New York.
Opec’s implementation of its November deal to curtail output is slipping after a strong start earlier this year. The International Energy Agency put compliance at 78 per cent in June, a six-month low, as Iraq, Ecuador and Venezuela pumped more than agreed. Iraq produced 4.5 million barrels a day, meeting just 29 per cent of its commitment.
Ecuador, Opec’s third-smallest member by production after Equatorial Guinea and Gabon, is now pumping close to 545,000 barrels a day from its oil fields in the Amazon rainforest, Perez said in the interview. That’s not far off the 548,000 barrels a day it produced before the Opec deal kicked in.
Opec and several non-member countries agreed to curb output by almost 1.8 million barrels a day, starting in January, to reduce global inventories and boost prices. So far the group, led by Saudi Arabia and Russia, has achieved little, with stocks well above the five-year average and prices down 15 per cent this year, in part due to rising US shale supply.
