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Ecuador now producing oil at a loss

Published:Thursday | August 27, 2015 | 2:05 PM
President of Ecuador, Rafael Correa.

Ecuadoreans are already contending with a rumbling, ash-spewing volcano and rising living costs because they use the appreciating US dollar as their currency.

Now they've been told that Ecuador's oil - its principal export and a vital source of government funding - costs more to produce than it earns.

President Rafael Correa explained on Tuesday, during a visit to areas threatened by the Cotopaxi volcano, that it costs the OPEC nation US$39 to produce a barrel of oil for which it only receives US$30.

If crude prices remain below US$40 that could mean more budget cuts or higher taxes.

Ecuador produces 538,000 barrels a day and under current circumstances stands to lose up to US$3 million a day on them, though the state-owned Petroecuador oil company says it was profitable for the first half of 2015 because oil averaged US$47 a barrel.

The country also has fixed-price contracts - the most significant with Petrochina from 2009 and Thailand this year that represent about US$7 billion in sales.

Oil sales contribute 13 per cent to the national budget, or about US$3.1 billion.

Tumbling oil prices this year have already prompted Correa to cut spending by US$2.2 billion, Finance Minister Fausto Herrera said last week.

The government has not yet specified what programmes will be cut. However, Correa did say that "for example, some of the substantial improvements in education would be delayed".

Correa has come under cri-ticism for not squirreling away any cash for emergencies but, instead, spending it on public works and other programmes that have helped make the leftist economist popular.

The economic crunch and Correa's response have helped

his opponents, who have, been organising street protests against him since June that have, in recent weeks, flared into violence.

- AP