The Biggest Winner In The Saudi Oil Supply Crisis

The weekend attacks on vital oil infrastructure in OPEC’s largest producer and the world’s top oil exporter Saudi Arabia could be a boon to Brazil, a non-OPEC producer which is not part of the OPEC+ production cut deal and which is set to boost its oil production and access to some of its prized oil exploration areas.  

With security risks in the Middle East now higher than many—if not all—analysts thought possible just a week ago, investors and oil buyers could turn to oil producing nations far from the tensions in the Persian Gulf, analysts and emerging markets investors say.

“I think people are beginning to think well maybe we should be looking to Brazil, for example, for their oil supply, to Mexico, to other countries in terms of where oil can come from,” veteran investor Mark Mobius of Mobius Capital Partners told CNBC on Monday, the first trading day after the attacks in Saudi Arabia left 5.7 million bpd of its production offline.

“If you look at the reserves that Brazil has, you’ll see that they can produce quite a lot of oil,” Mobius told CNBC.

After some delays in projects and heavy maintenance at the start of the summer, Brazil has boosted its oil and liquids production in the past two months and is set to be the second-largest contributor to non-OPEC oil supply growth this year and next, after the number-one growth driver, the United States. Related: Russia Capitalizes On America’s Thinly Stretched Middle East Focus

The attacks in Saudi Arabia could also spur more interest in Brazil’s upcoming oil auctions slated to be held in the next few months, analysts say.

On the downside, the oil price spike at the start of the week could put additional inflationary pressure on the Latin American countries, while Brazil’s state-owned oil firm Petrobras may have to carefully consider if, when, and how to potentially pass the oil price surge on to consumers at the pump, analysts and energy experts told BNamericas this week.

Petrobras will not be raising fuel prices immediately, the company said on Monday, adding that it would continue to monitor the market and “make timely decisions on future price adjustments.”

Although the rise in global oil prices will be positive for Petrobras’ share price, the Brazilian company should be careful how it will manage a fuel price increase, in order to avoid another crippling strike of truck drivers who are highly sensitive to diesel prices, BB Investimentos’ equity team says, as carried by BNamericas.

For future auctions offshore Brazil, slated for later this year, the attacks in Saudi Arabia could be ‘positive’ for Brazil in the sense that oil companies “will want access to oil production far from the tensions and will then start paying more attention to the pre-salt area,” Edmilson Moutinho, a teacher at the energy institute of São Paulo University USP, told BNamericas.

New exploration acreage and new discoveries will be vital for Brazil’s oil supply, which could potentially grow by 70 percent, to 4.4 million bpd in 2035, compared to 2018, McKinsey & Company said in a report in April this year.

“The outlook for Brazil’s oil production to 2035 will depend heavily on whether the country is able to open up for additional exploration and development in new fields and blocks. Companies other than Petrobras are poised to have a big role in making these investments happen,” McKinsey said.   Related: Saudis Scramble To Restore 1/3 Of Disrupted Oil Production Today

Brazil’s oil production is set to grow in the near term, organizations and analysts say.

According to OPEC’s Monthly Oil Market Report for September, Brazil will see an 180,000-bpd annual rise in production this year, and another

290,000 bpd annual supply growth in 2020.

Crude oil output is expected to increase by between 320,000 bpd and 360,000 bpd in the second half this year compared to the first half of 2019, when delays and maintenance led to production declines.

More than 80 percent of the estimated additional production from new projects in 2020 is expected to come from the Búzios (x-Franco), Lara, and Lula fields, OPEC said.  

Regardless of the developments in the Middle East, Brazil has a chance to significantly boost its oil production if its own regulatory and investment climate is attractive enough for major investments.  

By Tsvetana Paraskova for Oilprice.com

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