(Bloomberg) — Brazil’s recovery from a stunning collapse in oil production promises to complicate OPEC’s efforts to micromanage global supplies and prices.
Most read from Bloomberg
Daily crude production in the South American powerhouse started the year at 3.73 million barrels but then fell by almost 25% as roustabouts crawled across giant offshore platforms to make repairs and replace worn-out equipment.
Now more than a third of the deficit has been recovered, with far-reaching implications for Latin America’s largest economy and global energy markets. All that extra oil will hamper the Organization of the Petroleum Exporting Countries’ efforts to raise prices by cutting production.
Brazil’s prodigious offshore oil reserves, such as US shale oil, are an ever-present bugaboo for OPEC and its hegemony over global crude oil balances. The recent surprise decision by the cartel and its allies to relax some controls on oil exports could come back to bite if Brazil’s recovery is too robust.
Petroleo Brasileiro SA is pushing back the start date for a 100,000 barrel per day production ship to the fourth quarter of 2024, the state-controlled explorer said on June 19.
Brazil under President Luiz Inacio Lula da Silva has pushed to strengthen ties with OPEC and its allies, while refraining from any commitment to restrict production through its quota system. Last year, Brazil announced that it had joined a cooperation charter with the OPEC+ alliance, which provides a platform for dialogue between producing countries.
Brazilian oil fields could even surpass pre-collapse figures by roughly 200,000 barrels per day this year as maintenance work is completed and two new offshore developments come on stream, according to Wood Mackenzie Ltd.
“More wells will be connected and starting to produce,” Wood Mackenzie wrote in an email. “We believe it is too early to say that production will disappoint.”
Welligence Inc. meanwhile, is more cautious, predicting daily production of 3.4 million to 3.5 million for the rest of this year. Brazilian output growth will not resume the breakneck pace of 2023 until the second half of 2025, with the arrival of four new offshore installations, said Andre Fagundes, who covers Brazil for the energy consultancy and previously worked for the ANP.
Petrobras and other oil drillers face multiple headwinds. The environmental agency known as Ibama is on strike and it looks like the standoff over wages will only get worse. This has delayed permits for new production equipment and related work. According to the Brazilian Petroleum Institute, the strike has already curbed 80,000 barrels of daily production.
And then there’s Tupi, Brazil’s crown jewel, where crude production peaked several years ago and is still declining. Petrobras must negotiate the renewal of its operating license with the ANP before it can commit to investing billions in a secondary recovery program to halt the decline.
During a conference call with analysts in May, Petrobras attributed the production problems to so-called planned maintenance and said it expects to gradually return to previous levels. The company did not respond to a request for comment on this story.
–With help from Mariana Durao and Beatriz Amat.
Most read from Bloomberg Businessweek
©2024 BloombergLP
