The energy industry has been plagued by the sharp and deep drop in oil demand for months, and the outlook does not look too good either—with or without vaccines. Traditionally, China has been the one bright spot on the global map as the large consumer that is always thirsty for crude. Now, there appears to be another driver of hope for oil demand: Brazil. The biggest country in South America has been one of the most severely affected by the coronavirus pandemic, but unlike other places that suffered mass infections, this has not harmed fuel consumption.
On the contrary, Bloomberg reports Brazil's fuel consumption this year has been higher than it was in 2019 and is seen growing further next year driven by strong demand from the agricultural sector, which just finished planting a record amount of corn and soybeans, and from road traffic.
"The rebound in fuel demand was a big surprise," Paula Jara, an analyst at energy consultancy Wood Mackenzie told Bloomberg in an interview. "When you come to think about it, Petrobras is arguably a unique case worldwide because they were able to raise fuel-making pretty quickly."
In October, according to Bloomberg, Petrobras processed 1.85 million barrels of oil daily, up by a robust 17 percent on a year earlier, in response to the higher demand. The state major is now even facing a shortage of gasoline in the northeast that it needs to address amid a seasonal demand surge, Argus Media reported in late November.
The increase in demand in the final weeks of the year is coming on the back of eased movement restrictions amid the pandemic and, of course, the holiday season when many will travel to be with their families. Meanwhile, the chances for restrictions to be reimposed are slim, meaning there is little to challenge the surge in demand.
Related: Pandemic Crushes U.S. Refining Capacity
As for traffic patterns, Brazil is demonstrating what many theorized the pandemic would do to people's driving habits: trips to offices and college campuses have declined as they have elsewhere, but driving for other purposes, such as grocery shopping, has increased. Also, longer journeys out of town have also increased in Brazil, according to the Bloomberg report, driving demand for fuel higher.
In this context—and with demand expected to continue strong—it is no wonder that Petrobras has shown no particular interest in joining the energy transition rush we see in Europe and, to a lesser extent, the United States.
"We are not facing an identity crisis. We are an oil company," the chief strategy officer of the Brazilian state major told the Financial Times in a recent interview. "The demand will not disappear, and we don't see other technology able to replace fossil fuels on a large scale [soon]," Rafael Chaves Santos added.
According to BP's 2019 Energy Outlook, energy demand in Brazil is set for annual growth far exceeding the global total: 2.2 percent versus 1.2 percent in global annual growth. Although the supermajor forecast that the share of renewables will grow strongly in the country's energy mix, it also noted that oil production will also continue to expand strongly, with Brazil accounting for close to a quarter of the total global increase in production by 2040.
The chief executive of Petrobras recently referred to the renewables rush among other oil companies as a fad, questioning the plausibility of Big Oil's pledges to become net-zero companies by 2050.
"That's like a fad, to make promises for 2050. It's like a magical year," Roberto Castello Blanco told Bloomberg, adding, "On this side of the Atlantic we have a different view of climate change."
This does not mean that Petrobras has no emissions-cutting plans. It does, aiming at a 25-percent reduction by 2030. But at the same time, the company is not embarrassed about its core business and is planning an expansion of production while others curb theirs. Based on the demand outlook, the Brazilian major is not wrong.
By Irina Slav for Oilprice.com
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Things may be looking up short term for Petrobas, but there is absolutely no way that they can escape the global macrotrends. I certainly would not invest in a company that ignores these global macrotrends that are based on the science of anthropogenic climate change, because the science will be right and people will experience it first hand.