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Petrobras sees crude, bunker fuel exports rising in May -CEO
Petrobras

Coronavirus pandemic makes OPEC 'irrelevant'

- Export volumes strong, but prices depressed
- China snapping up barrels as economy restarts

By Platts

RIO
Petroleumworld 04 07 2020

Brazilian state-led oil producer and refiner Petrobras expects exports of crude oil and refined products, especially bunker fuel, to grow in May as key trading partner China emerges from a coronavirus-led shutdown, CEO Roberto Castello Branco said.

"We're exporting and being successful, just in volumes rather than revenues," Castello Branco said late Thursday during a webinar. "The outlook for May is good, with China recovering. The Chinese are buying with intensity, crude oil as well as bunker fuel."

The signs of a recovery in global demand led by China is a positive sign as the Western Hemisphere confronts the worldwide coronavirus pandemic. Brazil is especially dependent on demand from China, which is the biggest buyer of many of the country's commodities including crude oil, iron ore and soy.

Despite stronger-than-expected imports in recent months, Petrobras recently announced plans to slash investments by nearly half and production by 200,000 b/d to counter the economic impact of the outbreak. The production cuts were largely driven by increased storage costs as the world runs out of capacity during the price rout, with Russia and Saudi Arabia ramping up output and slashing prices in a battle for export market share, Castello Branco said.

"We've had to contract ships to maintain stocks floating at sea until we find a buyer," Castello Branco said.

DOMESTIC DEMAND DOWN

Domestic demand for jet fuel and gasoline also has cratered in recent weeks, falling 90% and 60%, respectively, amid shelter-in-place orders in many of Brazil's biggest cities, Castello Branco said.

Diesel demand decreased about 30%, staying slightly more resilient as the country's farmers start what's expected to be another record-setting oil seed harvest. Panic-buying of 13-kilogram LPG tanks used to power cooking stoves has also supported demand for that fuel, Castello Branco added.

Petrobras has warned it will likely be forced to reduce output at the company's refineries to counter sluggish domestic demand, especially in April and May. Petrobras' refineries were operating at about 74% of capacity in recent weeks, down from 79% in 2019.

'OPEC HAS BEEN MADE IRRELEVANT'

While Castello Branco said it was positive to see oil prices advance amid expectations for renewed talks between OPEC and Russia about potential production cuts, the global nature of the coronavirus crisis has diminished the group's power

"OPEC has been made irrelevant before the size of this crisis," Castello Branco said. The executive cited recent estimates that the pandemic caused 20 million b/d of demand to "disappear" from the market.

In addition, the disparate national interests and development levels mean getting a large group of producers to agree on anything in the current environment will be a growing challenge, Castello Branco added.

"The dispute between Russia and Saudi Arabia shows that OPEC no longer has the power to determine oil prices in the medium and long term," Castello Branco said. "There isn't common ground. It's difficult to coordinate all of these distinct interests."

Petrobras will focus on reducing costs to maintain the company's liquidity, Castello Branco said. In addition to the production cuts, Petrobras also reduced salaries, workers' hours, management bonuses and investments. Investments were slashed nearly in half, to $7 billion from $12 billion previously.

"We're in a situation never seen before, with a strong contraction in demand for our products and a strong decline in prices," Castello Branco said. "And the volatility in prices is enormous, bigger than what was seen in the global financial crisis of 2008."

Story from Platts S&P Global.

spglobal.com
04 03 2020

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