While all eyes are riveted on how much U.S. shale output is undermining OPEC’s production cuts and any oil price gains, other non-OPEC producers are also increasing crude production, and most importantly—exports. Rising supply from non-OPEC countries other than the U.S. adds yet another headache to the cartel as it continues to try (with little success so far) to kill the glut and lift the price of oil.

One of those non-OPEC deal producers is Brazil, which is not only growing its production, but is also seeing a surge in crude oil exports.

South America’s biggest economy is trying to emerge from a two-year recession—the worst in its history. Falling commodity prices and a series of corruption and political scandals—including a scandal at state oil firm Petrobras—has crippled the economy and undermined investor confidence in the past few years.

Brazil’s worst recession on record has led to a slump in domestic oil and fuel demand, and a rise in crude oil exports. Moreover, the country is trying to lure international oil companies to its offshore pre-salt fields with amended legislation, and is launching new projects and tenders. Analysts and international agencies—as well as OPEC itself—see Brazil as one of the biggest contributors to growing non-OPEC supply this year, albeit at a distant second or third behind U.S. shale.

Brazil’s oil exports jumped by 94 percent on the year in February this year, beating the previous record from January. In the first quarter of 2017, oil exports jumped by 56 percent compared to the same period last year.

The Q1 2017 surge in Brazil’s oil exports came after state-controlled Petrobras reported a 6 percent rise in exports and a 30 percent decline in imports for 2016, moving it into net exporter territory. In Q4 2016, Petrobras’ oil product production in Brazil dropped 3 percent to 1.8 million bpd. Domestic oil product sales decreased 4 percent to 2.0 million bpd, while oil and oil product exports jumped by 13 percent to 634,000 bpd, Petrobras said.

In Q1 2017, Petrobras’ oil and oil product exports soared 72 percent compared to Q1 2016.

Wood Mackenzie has estimated that Brazilian exports this year will rise to almost 1 million bpd, compared to 798,000 bpd last year.

While exports could improve Brazil’s foreign trade balance, this is bad news for OPEC, which is trying desperately, and so far not very efficiently, to draw down the global oversupply and prop up oil prices.

“Brazil becoming a relevant exporter is complicating OPEC’s efforts to control prices through supply cuts,” former oil regulator Helder Queiroz, a scholar at Rio de Janeiro Federal University, told Bloomberg by telephone.

OPEC’s latest Monthly Oil Market Report estimated that non-OPEC oil supply in the second half of this year will increase by 500,000 bpd compared to the first half, to average 58.4 million bpd. The U.S. is the main driver behind this higher growth, contributing 760,000 bpd, followed by Brazil and Canada with 120,000 bpd and 60,000 bpd, respectively. “On a country-by-country basis, the main contributors to growth in 2017 are expected to be the U.S. with 0.80 mb/d, Canada with 0.26 mb/d, Brazil with 0.21 mb/d and Kazakhstan with 0.13 mb/d,” OPEC said.

The June Oil Market Report by the IEA said that “Non-OPEC output is seen rising by 660 kb/d this year, a slight upward revision from last month’s Report. In 2018, growth will accelerate to 1.5 mb/d, driven by strong U.S. crude production and further gains from Brazil and Canada.”

In projections for oil supply until 2022, the IEA expects the countries other than the U.S. with significant growth to be Brazil, Canada, and Kazakhstan, “which will see their cumulative output rising 2.2 mb/d by 2022, reaping the rewards of investment decisions taken before oil prices declined.”

Moreover, Brazil’s pre-salt basin is adding new production, with international oil and gas majors participating in the consortia developing the fields.

“The hot oil plays will be U.S. tight oil (the Permian Basin again to the fore) and Brazil pre-salt, both of which have materiality and among the lowest development breakevens globally,” Wood Mackenzie said at the beginning of this year in its 2017 global upstream outlook.

Analysts concur that Brazil’s crude oil production will increase over the next few years. In the short term, Brazilian exports and output—coupled with U.S. shale and Canada gains—is offsetting a large part of the OPEC cuts.

Source: baystreet.ca