Brazil is oil market wildcard after near-million-barrel plunge

Brazil is oil market wildcard after near-million-barrel plunge

(Bloomberg) — Brazil’s rebound from a stunning collapse in oil production promises to complicate OPEC’s efforts to micromanage global supplies and prices.

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The South American powerhouse’s daily crude production started the year at 3.73 million barrels, then fell nearly 25% as backpackers crawled all over the gigantic offshore platforms to make repairs and replace worn equipment.

Today, more than a third of the deficit has been restored, with far-reaching consequences for Latin America’s largest economy and global energy markets. All that extra oil will hamper efforts by the Organization of the Petroleum Exporting Countries to raise prices by cutting production.

Brazil’s prodigious offshore oil reserves, like US shale, are a pervasive problem for OPEC and its hegemony over global crude balance sheets. The recent surprise decision by the cartel and its allies to relax some controls on oil exports could backfire if Brazil’s rebound is too robust.

Petroleo Brasileiro SA is advancing the start-up date of a 100,000 barrel per day production vessel to the fourth quarter of 2024, the state-controlled exploration company announced on June 19.

Brazil is oil market wildcard after near-million-barrel plunge

Brazil has insisted on strengthening ties with OPEC and its allies under President Luiz Inacio Lula da Silva, while refraining from any commitments to limit production through its quota system. Last year, Brazil announced its adherence to a cooperation charter with the OPEC+ alliance which provides a platform for dialogue between producing countries.

Brazilian fields could actually exceed the pre-collapse figure by around 200,000 barrels per day this year, as maintenance work ends and two new offshore development projects begin operations, according to Wood Mackenzie Ltd .

“More wells will come online and start producing,” Wood Mackenzie wrote in an email. “We think it’s too early to say the production will be disappointing.”

Welligence Inc., meanwhile, is more cautious, forecasting daily production of 3.4 million to 3.5 million for the rest of this year. Brazilian production growth will only return to the breakneck pace of 2023 in the second half of 2025, with the arrival of four new offshore facilities, said Andre Fagundes, who covers Brazil for energy consulting and previously worked for the ANP.

Petrobras and other oil drilling companies face multiple headwinds. The environmental agency known as Ibama is on strike and it appears the standoff over wages will only get worse. This has delayed permitting for new production equipment and related work. The strike has already reduced daily production by 80,000 barrels, according to the Brazilian Petroleum Institute.

And then there is Tupi, the jewel of Brazil, where crude production peaked several years ago and continues to decline. Petrobras must negotiate with the ANP to extend the operating license before it can commit to investing billions in a secondary recovery program to stem the decline.

In a conference call with analysts in May, Petrobras attributed production problems to so-called planned maintenance and said it planned to gradually return to previous levels. The company did not respond to a request for comment for this story.

—With the help of Mariana Durao and Beatriz Amat.

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