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This is the impact of the rise in the price of oil in Latin America

On September 26, the OPEC quoted the oil at USD $ 81.58. How would this affect Latin America's economy?

This is the impact of the rise in the price of oil in Latin America

On September 26, the Organization of Petroleum Exporting Countries (OPEC) reference basket closed the financial markets and quoted oil at USD $ 81.58. Thus, it reached its highest value since mid-2014, when prices began to decline rapidly.

Leer en español: Así impactaría el alza del precio del petróleo a América Latina

The agreement reached by OPEC in 2016 to reduce oil production, the first round of sanctions against Iran and the sharp decrease in production in Venezuela are the determining factors of this rise.

According to the BBC, OPEC does not intend to increase production quotas, at least until its next meeting in December. Therefore, experts in the field predict that prices per barrel could range between USD $ 90 and USD $ 100 in the coming months.

This increase would have a mixed effect on the economies of Latin America. Producer countries could benefit of this, while importers could face increases in the price level and falls in their economic growth.

The beneficiaries

According to the PanAm Post, a few months ago Colombia displaced Venezuela as the country in the region that exports the most oil to the United States. The coffee country has been making efforts to improve its crude production. Due to this, this increase in prices could greatly benefit the external accounts of the South American country.

Ecuador is another country that could benefit because, like Colombia, it is trying to increase its production to more than 520 thousand barrels per day, according to a press release from El Universo. Although for this, Ecuador has the challenge of getting the resources to make the necessary investments.

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The mixed effect

In this group are Brazil, Argentina, Bolivia, Mexico and Venezuela. The first four are oil producers, although it is not their main export product. Due to this, although their exports could improve due to the fact that they export oil, they also import refined products such as diesel and gasoline, so their terms of trade could worsen.

The case of Bolivia is similar, although its main export product is not oil but gas. Thus, this country could be benefited by an increase in the international price of gas, but it could be affected because it imports a significant amount of oil.

Finally, Venezuela is a special case. Although this country has always been characterized as the main exporter of crude oil in the region, the figures of its imports extracted from TradeMap reflect that imports of light crude from the United States have increased remarkably. This to the point of meaning almost half of its imports for 2017.

This is because Venezuela needs that light crude to dilute the heavy crudes that it extracts from the Orinoco Oil Belt. In addition, in the last year Venezuela's production has deteriorated.

In fact, it has gone from 2.1 million barrels per day in 2016 to 1.3 million barrels per day in July 2018, according to OPEC information. Therefore, the sustained increase in crude oil prices in the last year has not translated into an improvement in Venezuela's external accounts.

The harmed ones

On the other hand, the increase in crude oil prices could be a negative phenomenon for the net importing countries of this product, such as Chile and Peru. This increase could translate into an increase in fuel prices which, in turn, it could have an impact on inflation, consumption and, finally, reduce the growth scenarios of these economies.

LatinAmerican Post | Daniel Ramírez Pérez

Translated from "Así impactaría el alza del precio del petróleo a América Latina"

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