(Bloomberg) — Brazil’s recovery from a stunning collapse in crude production is likely to complicate OPEC’s efforts to micromanage global supplies and prices.
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The South American giant’s daily crude oil production started the year at 3.73 million barrels per day but has since plummeted nearly 25 percent as workers crawled on giant offshore platforms making repairs and replacing aging equipment.
More than a third of the deficit has now been restored, with far-reaching implications for Latin America’s largest economy and global energy markets. The extra oil will hamper efforts by the Organization of the Petroleum Exporting Countries (OPEC) to raise prices by cutting production.
Brazil’s vast offshore oil reserves, like U.S. shale oil, have been a constant thorn in the side of the Organization of the Petroleum Exporting Countries (OPEC), which controls global oil supply and demand. A recent surprise decision by OPEC and its allies to partially ease oil export restrictions could come back to bite them if Brazil’s recovery is too strong.
State-owned oil company Petroleo Brasileiro SA said on June 19 it would bring forward the start-up date of a vessel with a production capacity of 100,000 barrels per day to the fourth quarter of 2024.
Brazil, under President Luiz Inacio Lula da Silva, has pushed for closer ties with OPEC and its allies but has refrained from any commitment to limit production through quotas. Last year, Brazil announced it would join a cooperation charter with the OPEC+ alliance that provides a forum for dialogue among oil-producing countries.
Brazil’s oil fields could surpass pre-collapse figures by about 200,000 barrels per day this year as maintenance work finishes and two new offshore developments come online, Wood Mackenzie said.
“More wells will be connected and begin production,” Wood Mackenzie said in an email. “We believe it is premature to say that production will disappoint.”
Welligence, on the other hand, is more cautious, forecasting production at 3.4 million to 3.5 million barrels per day for the rest of the year.Brazil’s production growth won’t return to the torrid pace of 2023 until four new offshore facilities are completed in the second half of 2025, said Andre Fagundes, who covers Brazil at energy consultancy Fiat and was previously with ANP.
Petrobras and other oil drilling companies face a variety of headwinds, including a strike by environmental group Ibama and a dispute over wages that is likely to worsen, which has delayed permitting for new production and related work. The strike has already curtailed production by 80,000 barrels per day, according to the Brazilian Petroleum Institute.
And with production from Brazil’s crown jewel, the Tupi field, having peaked several years ago and been declining since, Petrobras needs to negotiate an extension to its operating license with the ANP before investing billions of dollars in secondary recovery programs to halt the decline.
Petrobras said in a conference call with analysts in May that the slowdown in production was due to so-called planned maintenance and that it expected production to gradually return to previous levels. The company did not respond to requests for comment on the matter.
–With assistance from Mariana Durao and Beatriz Amat.
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