Ecuador May Buy Oil Hedge Against ‘Drastic’ Drop in Prices

Ecuador, the smallest member of the Organization of Petroleum Exporting Countries, may buy oil hedges to protect against sharp declines in the price of crude, central bank President Diego Borja said today.

The government hasn’t decided when it might purchase the oil hedges, Borja said in an interview on television channel Ecuavisa, without providing more details. Ecuador’s President Rafael Correa said July 2 a possible economic slowdown in Europe and the U.S. could push crude prices lower in 2012, according to a statement in the presidential gazette.

The price of Ecuador’s Oriente crude, which this year has averaged almost $26 per barrel more than the $73.30 forecast in the 2011 budget, fell 5.2 percent from the end of May to yesterday, according to Bloomberg data. The government, which receives about 24 percent of its revenue from oil, wants to guarantee prices don’t drop too low to ensure enough funds to continue financing budgeted public works projects, Borja said.

“It’s important to cover yourself when there are drastic falls” in the price of oil, Borja said in the interview. “The government is studying when it would be convenient to buy them.”

Oriente crude rose $2.21, or 2.2 percent, today to $101.09 per barrel as of 9:34 a.m. New York time, its highest intraday price since June 10, according to Bloomberg data.

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net