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Five reasons why Brazil doesn’t need OPEC

Oil&Gas Materials 29 November 2019 14:46 (UTC +04:00)
Five reasons why Brazil doesn’t need OPEC

BAKU, Azerbaijan, Nov.29

By Leman Zeynalova – Trend:

If Brazil ultimately becomes an OPEC member, this would be advantageous for the cartel and Brazil would be the loser by a long shot, Trend reports citing Rystad Energy’s latest forecast.

“Brazil has experienced a tremendous spurt in crude oil production, propelled by the development of its pre-salt resources. However, taking Brazil’s oil production to its current level certainly didn’t come cheap. Petrobras has paid over 78 percent of Brazil’s $396 billion bill for exploration (excluding dry well costs), development and operations from 2010 to 2018. This, in 2014, made Petrobras the world’s most indebted listed exploration and production company. Petrobras would be counting on the revenues from its growing production to help scale its debt mountain. OPEC-mandated production cuts at its projects would threaten Petrobras’ attempts to reduce gearing,” said Rystad Energy in its analysis.

The company names five reasons why Brazil doesn’t need OPEC:

1) Petrobras doesn’t need OPEC — it needs to reduce its still substantial debt.

2) The established players with activities in Brazil don’t need OPEC — they seek returns on already considerable investments incurred.

3) The new entrants nibbling at Petrobras’ divestment clusters don’t need OPEC — they want to stabilize and even grow production at their acquisitions.

4) The oilfield service industry doesn’t need OPEC — it would rather have increased production levels to ensure more business.

5) Brazil has been invited to join OPEC previously also; then the government stated that under Brazilian law it can’t interfere with production operations. So even the Brazilian government doesn’t really need OPEC. No one in Brazil appears keen on the OPEC diet.

At an October forum in Saudi Arabia, Brazil’s president Jair Bolsonaro suggested that he would like to see Brazil join OPEC.

In late 2018, OPEC and a number of countries outside this organization (OPEC+ format) decided to modernize the terms of the agreement on the reduction of oil production, in force from the beginning of 2017. The countries agreed to reduce the total production by 1.2 million barrels per day from the level of October 2018.

On July 2, 2019, a decision was made in Vienna to extend the agreement on reducing oil production by OPEC member and non-member states until the end of the first quarter of 2020.

The 177th Meeting of the OPEC Conference is expected to be held December 5, 2019, followed by the 7th OPEC and non-OPEC Ministerial Meeting on December 6 in Vienna, Austria.

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Follow the author on Twitter:@Lyaman_Zeyn

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