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Petrobras Expects Permanent Damage To Oil Demand As It Writes Off Billion

Petrobras has warned its shareholders that the coronavirus pandemic could leave a permanent mark on the global economy, including on consumer behaviors, as it reported a first-quarter loss and massive writeoffs on assets that have stopped being economical.

The company booked a $9.7 billion net loss for the first quarter, down from a profit of $1.98 billion a quarter earlier, mostly on an impairment charge of $13.4 billion related to shallow- and deepwater assets.

"The assets that had their values adjusted are mostly oil fields in shallow and deep waters, whose investment decision was made in the past and based on more optimistic expectations for long-term prices," Petrobras said. "We are not surprised by its devaluation in a more challenging environment."

The company noted that it has yet to feel the pandemic's economic effects on its financial results, which it expects to happen in the current and subsequent quarters. For now, its free cash flow is strong, Petrobras said, and so is its overall position. Related: Goldman Sachs: Oil Market Headed For Deficit In June

The outlook for the future is not optimistic, however. The Brazilian company expects Brent prices to average just $25 a barrel this year and the rise by some $5 a barrel annually to reach $50 in 2025. This is an extremely unfavorable scenario for most oil producers.

But besides prices, Petrobras also said it expected permanent changes in consumer habits, resulting from the economic shock caused by the pandemic on a global scale. This reference to changed habits may imply changes in energy use and hence oil demand that would have a long-term effect on the industry.

Petrobras expects the overhang in global oil inventories to persist, with rebalancing taking a while, the company also said, noting that "oil consuming industries, given the new scenario, will not keep their previously projected demands in the long-term, reducing consumption levels."

By Irina Slav for Oilprice.com

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