According to Oil and Gas Journal (OGJ), Ecuador held proven oil reserves of 4.5 billion barrels in January 2008, the third largest in South America. Ecuador is the fifth-largest producer of oil in South America, producing 512,000 bbl/d of oil in 2007 (almost all of which was crude oil), down from 538,000 bbl/d in 2006. As of April 2008, Ecuador had an OPEC crude oil production quota of 520,000 bbl/d.

Crude oil production has increased sizably since the opening of the Oelductode Crudos Pesados (OCP) in September 2003 (see below). However, production has fallen in recent years, the result of natural decline, the lack of new project development, and some operating difficulties at existing oil fields. In 2006, Ecuador consumed 152,000 bbl/d of oil, leaving 2006 net exports of 350,000 bbl/d. Ecuador sends over 50 percent of its oil exports to the U.S., the remainder split between Latin America and Asia; in 2007, Ecuador exported 203,000 bbl/d of crude oil and refined products to the United States, about two percent of U.S. oil imports. Ecuador is the second-largest source of U.S. crude oil imports from South America, after Venezuela. Other important destinations of Ecuador’s crude oil exports in include Peru, Chile, and Central America.

Petroecuador, owned by the Ecuadorian government, was responsible for 51 percent of the country’s crude oil production during 2007. The largest foreign-owned oil company is Repsol-YPF; during the first half of 2007, Repsol-YPF production in Ecuador represented 13 percent of the country’s total crude oil production. Other important foreign oil producers include Andes Petroleum (12 percent of national production), a consortium led by the Chinese National Petroleum Corporation (CNPC) that acquired assets in September 2005 formerly owned by EnCana; Perenco (4.9 percent of national production); and Agip (4.7 percent of national production).

While Ecuador’s crude oil production increased 31 percent from 2001 to 2005, Petroecuador's share of national crude oil output declined from 56 percent to 37 percent during that same period. However, Petroecuador’s share of national production jumped to 46 percent in 2006, following the company’s takeover of the former production assets of Occidental Petroleum. According to media reports about the issue, the proximal cause for the takeover was the claim by the Ecuadorian government that Occidental had violated its production contract by transferring some assets to another oil company. Prior to this, however, there had been other disagreements between the two parties, including a $76 million arbitration award to Occidental in 2004 over a dispute regarding back taxes. Occidental has since launched an arbitration claim against the Ecuadorian government seeking compensation for the takeover.

In October 2007, President Correa signed a decree establishing a 99 percent windfall tax on oil company profits, up from the 50 percent rate established in 2006. The tax takes effect whenever Ecuador’s oil export basket exceeds $24 per barrel; while Ecuador’s export basket trades at a substantial discount to world benchmark crude prices like WTI, it was well higher than this threshold level in 2007 and expected to remain so in the short-term. The decree offered an alternative to the higher tax levels: oil companies could agree to transition their projects to service agreements, where they would produce oil on behalf of the government for a fee. However, under these deals, the companies would transfer existing investments at the field to the government and would no longer be able to book (for accounting purposes) oil reserves at the field. According to media reports, companies continued to negotiate the terms of the new policies with the Ecuadorian government in early 2008.

Ecuador's most productive oil fields are located in the northeast corner of the country. The largest oil field is Petroecuador’s Shushufindi. Other major oil fields include Sacha (Petroecuador), Dorine (Andes), and Eden Yuturi (Petroecuador, formerly Occidental). Ecuador produces two varieties of crude oil: Oriente and Napo. Napo is a heavy, sour crude, with a 19° API and 2 percent sulfur content, while Oriente is a medium-heavy, medium-sour crude, with a 29° API and 1 percent sulfur content.

Future increases in Ecuador’s crude oil production will likely come from development of the Ishpingo-Tapococha-Tiputini (ITT) block. The government plans to open ITT to foreign producers through a licensing round in the near future. The ITT block, located in Ecuador's Amazon region, contains an estimated 900 million barrels of proven reserves, with potential recoverable reserves as high as 1.3 billion barrels. Analysts predict that, if fully developed, the block could produce at least 190,000 bbl/d. However, the ITT block reportedly contains a variety of crude oil even heavier than Napo, so any oil producer would need to blend the crude with lighter hydrocarbons before shipping it via Ecuador's pipeline network.

As an alternative to the development of the ITT block, President Correa floated the idea that the international community could pay Ecuador to not produce the oil reserves there. The country sought $350 million per year over a ten year period, representing its estimate of one-half of the revenues that it could earn from oil production from the ITT block. There has been significant opposition to oil development in Ecuador by indigenous groups, which object to increasing oil production in the Amazon region on environmental grounds. These groups have repeatedly obstructed exploration and production activities in Ecuador's eastern region. The ITT block, which sits deep in the Amazon region, could face resistance from these groups.

Protests against the oil industry can have a direct impact upon the country’s crude production. These kinds of production outages are usually small, affecting minor amounts of crude oil production and often last no more than a few weeks. However, these actions will occasionally shut-in large segments of Ecuador’s oil production capacity. In August 2005, protest groups shut down Petroecuador’s crude oil production for a week, forcing the company to declare force majeure on its crude exports. In February 2006, Petroecuador shut down the a major pipeline system for several days, after protesters occupied a pumping station.

Ecuador has two major oil pipeline systems. The first is the Sistema Oleducto Trans-Ecuatoriano (SOTE), built in the early 1970s. The 310-mile, 400,000-bbl/d SOTE runs from Lago Agrio to the Balao oil terminal on the Pacific coast. SOTE has suffered from natural disasters that severely disrupted Ecuador's oil production. In March 2008, landslides damaged SOTE, shutting operating for several days. In March 2004, another landside halted oil shipments through SOTE, prompting Petroecuador to declare force majeure on its export contracts. In 1987, an earthquake destroyed a large section of SOTE, reducing Ecuador's oil production for that year by over 50 percent.

The second oil pipeline is the Oleducto de Crudos Pesados (OCP). The 300-mile, 450,000-bbl/d OCP mostly parallels the route of the SOTE. The OCP began operations in September 2003, and its completion immediately doubled Ecuador's oil pipeline capacity. The completion of the OCP pipeline led to a sharp increase in Ecuador’s crude oil production, as private companies were no longer constrained by the capacity limits of the SOTE. Use of the OCP system is mostly confined to private oil producers, with Petroecuador relying upon SOTE.

Ecuador utilizes one international pipeline, the TransAndino. The 50,000-bbl/d pipeline connects Ecuador's oil fields with the Colombian port of Tumaco. The TransAndino pipeline has occasionally been the target of rebel forces in Colombia, and an attack in March 2008 shut the system down for several days.

According to OGJ, Ecuador has three oil refineries, with a combined capacity of 176,000 bbl/d. The largest refinery in Ecuador is Esmeraldas (110,000 bbl/d), located on the Pacific coast. Ecuador is a net importer of refined oil products: during the first half of 2007, Ecuador’s Ministry of Energy and Mines reported that the country imported 86,000 bbl/d of refined products, while exporting 36,000 bbl/d. Further compounding the situation is the nature of Ecuador’s trade in petroleum products: in general, the country exports heavy refined products, like fuel oil, and imports lighter products, such as gasoline, diesel, and liquefied petroleum gas (LPG). Since the heavy product exports command a much lower price on the world market than Ecuador must pay for the light product imports, the value of the net trade balance is more skewed than would be suggested by simply comparing import and export volumes.

The Ecuadorian government is actively seeking ways to increase domestic production of lighter petroleum products. These plans include building new refining facilities or upgrading the Esmeraldas plant to better handle Ecuador’s heavy domestic crude production. In 2008, the Ecuadorian government announced that it had reached an agreement with Venezuela to build a 300,000-bbl/d refinery in Ecuador at an estimated cost of $5 billion. The facility would be located in Manabi province and is expected to come online in 2012.