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The barrel price of West Texas Intermediate (WTI) for delivery in June, which began trading on the markets this Wednesday, it earned more than $ 4, a jump of nearly 40%, amid great nervousness from investors.
The price of the WTI was worth this day $ 15.74, an increase of 36.04% compared to the close on Tuesday. Shortly before, it had reached $ 16.20, with more than 40 percentage points of profit.
The barrel of Brent, from the North Sea, rose 14.43% to settle at $ 22.12.
“(Current) volatility will persist until the OPEC + agreement comes into force on May 1,” Russian Energy Minister Alxandre Novak was quoted as saying by Russian news agencies after a video conference with the Duma deputies on Wednesday.
The WTI price moved into negative territory on Monday, for the first time in history.
“We are currently in the most active phase of the drop in demand. According to different estimates, that drop is equivalent to 20-30 million barrels per day ”(mbd), he explained.
The agreement of OPEC, Russia and other associated producers was to cut production by 9.7 mbd from May.
Those massive cuts “are not enough to offset the drop in demand and stabilize the oil market,” confirmed Eugen Weinberg, analyst at Commerzbank.
Several member countries of OPEC and other producers discussed on Tuesday during a teleconference the “Dramatic situation” of the crude oil market, whose prices are collapsing as a result of the Covid-19 pandemic.
Latin America’s finances in trouble
The historic collapse of oil, with prices that this week fell in unusual negative terrain, It clouds the outlook for Latin American countries with hydrocarbon-dependent finances.
Countries like Venezuela, Ecuador or Mexico, already burdened by the expectation of severe economic contractions, will now have to adapt to oil revenues that could fall below their budget calculations, when resources are more urgent.
“With oil falling, the room for maneuver is reduced” to act against the pandemic, said Andrés Abadía, an economist at the consulting firm Pantheon Macroeconomics.
Venezuela, the country most dependent on crude oil, will be by far the hardest hit, given the dire state that its economy was already suffering before the appearance of the coronavirus, noted the expert.
Even though its crude production costs are relatively low, around 15 dollars per barrel, current prices “are going to be a great blow to your convalescent industry,” says Abadía.
The IMF forecast last week a collapse of 15% for the Venezuelan economy in 2020.
For Ecuador, where the pandemic has reached tragic heights, with thousands of deaths and collapsed morgues, the collapse of prices represents a “very hard blow”, according to President Lenín Moreno.
The oil It is the main export of the country whose external debt amounts to 65,000 million dollars, more than 50% of the national GDP, and which postponed last March payments to its creditors and the IMF.
“The country will have difficulties in implementing a similar stimulus package to its neighbors, since its agreement with the IMF calls for a certain austerity,” explains Abadía.
According to the Monetary Fund, the Ecuadorian GDP would fall 6.3% this year.
Pemex, Mexico’s Achilles heel
In Mexico, the second largest economy in the region, more diversified and solvent than Venezuela or Ecuador, the main vulnerability has its own name: Petróleos Mexicanos (Pemex).
The collapse in prices is a blow to the state-owned company whose debt exceeds 100,000 million dollars, as it struggles to revive its dwindling production that fell by half compared to 2004.
The government of Andrés Manuel López Obrador It froze an opening of the sector to private investment, which had started in 2013, reducing fresh capital options for Pemex.
His financial stress was exposed last week when Fitch and Moody’s rating agencies downgraded their debt to speculative grade, after Mexico’s credit rating was also reduced by both agencies, in addition to S&P, anticipating the impact of Covid-19.
Oil exports represent around 18% of budget revenue of Mexico and will tighten the accounts together with the lower tax collection due to the economic contraction.
Colombia’s “number one problem”
In Colombia, once the health crisis dissipates, oil will become “the number one problem in the country”, in the opinion of the former Minister of Finance, Mauricio Cárdenas (2012-2018).
The blow to the budget, which had a barrel at $ 60.5 and where oil income represented 9.3% of 2019 income, will be felt next year when companies in the sector pay the taxes of this fateful 2020.
For Francisco José Lloreda, president of the Colombian Petroleum Association, the country needs “a Brent between 40 and 45 dollars” for the business to be profitable and investment in exploration and production not to decline.
Nail 50,000 people depend on this industry in Colombia, according to the expert.
Brazil does not escape
In Brazil, the largest Latin American economy, the 2020 budget was prepared with an expectation of $ 58.96 per barrel of Brent. The consequences of the debacle are diverse.
The impact on tax revenues is anticipated brutal, not only by the fall in taxes, but also by the suspension of hydrocarbon field auctions planned for this year and the royalties that the producing states will no longer receive, beginning with Rio de Janeiro.
Shares of state-owned Petrobras have fallen nearly 50% this year.
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