Brazil’s President Jair Bolsonaro floated the idea of joining OPEC during a visit to Saudi Arabia.
Appearing at the so-called “Davos in the Desert,” Bolsonaro expressed interest in OPEC. “I personally would very much like Brazil to become a member of OPEC. Yes, I think the potential is there. We have enough reserves, oil reserves. Actually larger oil reserves than some current OPEC member countries.” he said in Riyadh. He added that he would have to consult with his economy and energy ministers on the idea, however.
The prospect of Brazil joining OPEC would mean another major global oil producer coming under the umbrella of the cartel, adding some 3 million barrels per day (mb/d) to the group’s collective output. The South American country would become OPEC’s third largest producer if it joined. “It is the first step for maybe putting in place this policy in Brazil,” Bolsonaro said.
However, the timing is a bit odd for Bolsonaro. Next week, Brazil is hosting two major offshore oil licensing rounds, from which the government hopes to raise more than $25 billion.
Announcing that the government might join a group that decides to restrict output at unpredictable times may not be something that multinational companies want to hear. Some companies are already chafing at the terms that are accompanying Brazil’s oil auction.
When Reuters asked the CEO of Repsol Sinopec Brasil whether or not the auction was expensive, Mariano Ferrari said: “We’re not participating, which should give you the answer to that question.” Related: Protect The Oil: Trump’s Top Priority In The Middle East
Reuters described the auction as “the closest thing to a sure bet in the world of offshore oil production” because Petrobras has already done some of the painstaking exploration work. Because of that, and because the government knows that there are billions of barrels of oil that lie beneath the sea, the government is reportedly asking for large signing bonuses and a sizable portion of production, Reuters added.
In reality, Brazil joining OPEC is probably not going to happen, not least because it’s not clear how the government would impose output restrictions on companies that operate in the country.
In any event, oil production in Brazil is on the rise, and even Bolsonaro probably doesn’t want to mess with that. In that context, it’s not clear what he is trying to achieve in Riyadh.
The developments come as Bolsonaro faces a brewing crisis at home. Brazilian media reported on Tuesday on links between Bolsonaro and the killers of Rio City Councilwoman Marielle Franco last year. Bolsonaro went on a tirade on a live stream on Facebook shortly after.
Meanwhile, Saudi Crown Prince Mohammed bin Salman faces his own set of challenges. A year after the murder of Saudi journalist Jamal Khashoggi, the global financial elite have raced back to Riyadh. The amount of money at stake is too good to pass up, apparently.
The partial IPO of Saudi Aramco is one of the biggest issues that everyone is watching, and one that dozens of banks are scrambling to get a piece of. But the timing is still pretty awful for Aramco. The oil market is still in the doldrums and the outlook for 2020 is not much better. That raises questions about what OPEC+ will do at the upcoming meeting in December. Saudi Arabia is desperate for higher prices, and so it might take on more production cuts. Related: IEA: An Oil Glut Is Looming
Nigeria’s oil minister said as much after meeting with his Saudi counterpart, suggesting that Saudi Arabia would take on greater production cuts to push up prices. But analysts immediately raised questions. “We find this dubious to say the least, if not grotesque: the two ministers are far more likely to have discussed the fact that Nigeria needs to cut its output…After all, Nigeria is the country that has made the smallest contribution to OPEC’s production cuts so far,” Commerzbank said in a note on Wednesday. “We therefore doubt why Saudi Arabia should signal to Nigeria that it is willing to make more pronounced production cuts. It is also strange that Nigeria announces this to the public.”
Nevertheless, MbS is desperate to pull off a successful IPO of Aramco, so any decision in Vienna will likely be made in that context. He could use some production cuts from Brazil, which would aid his effort, but such an outcome seems exceedingly unlikely.
By Nick Cunningham of Oilprice.com
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