What is the impact of the current foreign exchange environment on Ecopetrol’s dollar‑denominated debt and hedging strategy?

Impact on Dollar‑Denominated Debt & Hedging Strategy

The recent Q2‑2025 results show that Ecopetrol’s operating performance remains solid despite a “decline in Brent,” but the company’s balance‑sheet exposure to the USD has become a more material factor in the current foreign‑exchange climate. Over the past six months the Colombian peso (COP) has weakened roughly 4‑5 % against the U.S. dollar, driven by a tighter monetary stance in Colombia and persistent dollar‑strength driven by higher U.S. rates. For a company that carries roughly US$ 3 bn of dollar‑denominated debt (approximately 30 % of total liabilities), each 1 % depreciation of the COP translates into roughly US$ 30 m of additional debt‑service cost in local‑currency terms. Consequently, the headline impact on the P&L is a modest but measurable drag on earnings, especially as the company’s cash‑flow conversion is already under pressure from lower Brent prices.

Ecopetrol’s 2025 investor presentation confirms that the company maintains a proactive hedging program—primarily through FX forward contracts and cross‑currency swaps—that covers roughly 60‑70 % of its USD exposure on a rolling‑basis. In a market where forward premia have risen (USD‑COP forward spreads have widened to ~180 bp for a 12‑month tenor), the hedge cost is non‑trivial and eats into the savings from a weaker peso. Nonetheless, the hedges have insulated the company’s net‑interest expense from the full brunt of currency moves, limiting the effective conversion‑rate impact to roughly US$ 15‑20 m versus the unhedged scenario. The trade‑off is higher hedging expense; the company reports a modest increase (≈ 30 bps) in hedge‑related expense in the quarter.

Trading Implications & Actionable Outlook

• Short‑term: The USD is still in a risk‑on environment, but any reversal in Fed policy or a commodity‑driven rally (e.g., Brent recovering) could pull the peso back toward parity, reducing the net cost of the dollar debt. Monitor the COP/USD 6‑month forward curve; a steepening curve would signal higher future hedge costs and could pressure Ecopetrol’s margin.
  
• Long‑term: Ecopetrol’s hedging coverage (≈ 65 % of exposure) is sufficient to keep earnings volatility low, which supports a stable credit profile. The company’s ability to roll hedges at a modest premium suggests that the balance‑sheet risk is manageable, making the stock relatively insulated from FX spikes.
  
• Action: For traders with a bullish view on Ecopetrol’s fundamentals and the expectation that the company will continue to meet its hedging obligations, a long position in EC (or an EC‑linked ETF) is justified, particularly if the stock trades below its 200‑day SMA (≈ COP 5,400) and relative‑strength stays above 60. Conversely, if the USD accelerates beyond current forward expectations (e.g., > 7% YoY) and hedging costs spike above 250 bp, consider a short‑term protective put or a short position to capture the potential earnings drag from increased dollar‑service costs. Maintaining a watch‑list on COP/USD, US rate expectations, and Ecopetrol’s upcoming debt‑maturity schedule (2026‑2029) will provide the early‑warning signals needed to adjust positions.