The value of crude oil has risen nearly 4% in the last month due to the crisis in Iraq, which has helped cushion Colombia’s economy from a current decline in oil production, national media reported on Monday.
|“[Higher] prices give us a respite, but the challenge is to restore production.”|
The current crisis in Iraq caused by rebel offensives has pushed up the oil prices on the international market, which has resulted in a price increase of nearly 4%. This is good news for Colombia since the country’s oil production has decreased. With the rise in prices, the increased value is balancing out lower volume, Colombia’s Portafolio financial magazine reported.
“[Higher] prices give us a respite, but the challenge is to restore production,” said Finance Minister Mauricio Cardenas Santamaria, quoted by Portafolio.
The two important grades of crude oil used to benchmark oil pricing, WTI and Brent, both closed at respectively $106.16 and $114 per barrel on Monday.
Oil exporter Colombia to benefit
This benefits the Colombian economy since approximately 70% of its oil production goes towards exporting, which made up about 670,000 out of of 982,000 barrels per day up to May of this year, at a price of $94.40 per barrel, according to figures from Ecopetrol.
Oil sales abroad comprised 68% of total 2014 exports up to April, which is a 3.7 % decrease in value over the same period last year, from $12.587 million to $12.126 million.
The latest figures from Colombia’s national statistics agency DANE showed that Colombia’s exports saw a drop of $650 million in April compared to the same period last year, a decrease in 13.1 %. DANE attributed the decrease mainly to fuels and minerals.
Turmoil disrupts oil production in Iraq
Iraq is the world’s second largest producer of crude oil with 2.5 million barrels per day. The Middle Eastern country is expected to contribute to more than half of the increase in production that the global economy requires over the next 5 years, according to Portafolio.
The rebel offensive in Iraq is led by the jihadist organization Islamic State of Iraq and the Levant (ISIS), which fights to destabilize the government of Prime Minister Nouri Maliki. Iraqi forces have been engaged in heavy clashes with the rebels who have seized several key cities in the past week.
The crisis has in the last weeks driven oil prices on the global market to a level not seen in the past nine months.
Breathing room for Colombia
The rise in prices gives Colombia some breathing space since the country currently has to deal with a drop in exports, a decrease in oil production, and the prospect of running out of oil reserves by 2020.
This is not the case in Iraq where the country is expected to reach a production level of 8.4 million barrels per day from 2018. This corresponds well with the rise in demand for oil. According to a report from the International Energy Agency, world oil demand will be 92.76 million barrels per day, nearly one million barrels more than the previous projection, Portafolio reported.