Brazil's oil exports set to jump this year, weakening OPEC curbs

RIO DE JANEIRO/SAO PAULO (Reuters) - Brazil is poised to sharply increase oil exports this year as heavy investments spur new output and demand for its lighter crudes win more buyers, especially in China and India.

FILE PHOTO: A worker paints a tank of Brazil's state-run Petrobras oil company in Brasilia, Brazil September 30, 2015. REUTERS/Ueslei Marcelino/File Photo

Production is projected to rise 210,000 barrels per day (bpd) in 2017, second only in the size of additional supply to the United States among non-OPEC producers. Higher output from the U.S. and Brazil are among the factors impeding an OPEC-led effort to lift crude prices through production cuts.

Growth in exports should continue in future years as companies such as Royal Dutch Shell Plc prepare to tap some of the largest discoveries made since the end of the last decade off the nation’s Atlantic coast.

Already just in the first two months of the year, Brazil’s oil exports have soared 65 percent over the same period a year earlier to record highs of more than 1.46 million bpd, according to government data obtained by Reuters.

Consultancy Wood Mackenzie estimates 2017 exports will hit nearly 1 million bpd, up from 798,000 bpd last year.

Years of heavy investment that left state-controlled Petróleo Brasileiro SA (Petrobras) as the world’s most indebted oil company are beginning to pay off. The nation hopes to use higher oil sales to help drag its economy out of a two-year recession.

Exports are rising along with the company’s output of light, sweet crudes, Guilherme Franca, executive manager for marketing and trading at Petrobras told Reuters.

“Our production consists of much lighter oil than we used to produce in the past,” he said in an interview.

“We have demand for more of it than we can deliver.”

Light, low-sulfur crudes are easier and cheaper to refine into gasoline and diesel, and match demands for less polluting fuels in Asia, the United States and Europe.

Franca said exports by Petrobras alone rose to 420,000 bpd in 2016 and should reach 450,000 bpd this year. If it meets future targets, the company could be exporting as much as 750,000 bpd as soon as 2020, he said.

In the first two months this year, Brazil sold 10.4 million barrels of crude to India, half as much as it shipped to the country during 2016, Brazil’s trade ministry data showed.

Sales to China in January and February totaled 40.8 million barrels, up 125 percent from the same period in 2016 and more than 10 times Brazil’s shipments to the country five years ago.

Some of the oil shipments are linked to repayments on as much as $15 billion in loans from China, including debt taken on in 2009.

Under deals with lender China Development Bank, the oil giant would send as much as 300,000 bpd to four Chinese firms: China National United Oil Corporation, China Zhenhua Oil Co Ltd, Chemchina Petrochemical Co Ltd and Unipec Asia, a subsidiary of Sinopec Corp .

“There is strong demand currently for Brazil’s medium-sweet crude. The United States, China, Korea, India, they are all buyers of this type of oil due to newer standards to reduce sulfur content in fuels,” said Esa Ramasamy, an analyst with S&P Global Platts.

Ramasamy said 65 percent of Brazil’s output is medium-sweet grades and most of the country’s new production will be of the same type.

Petrobras produced 2.14 million bpd in 2016 and targets 2.77 million bpd by 2021. The company, which is trying to reduce debt of around $100 billion, is pouring all its efforts into the high-yield subsalt region.

Shell, the second largest producer in Brazil after Petrobras, is pumping around 295,000 bpd and wants to quadruple that in three years. The company is part of a consortium that will explore the giant Libra subsalt prospect, along with Petrobras, France’s Total SA and China’s CNOOC Ltd and China National Petroleum Corp.

March shipping data shows PetroChina moving a 130,000-tonne tanker from Brazil to China. Commodity trader Vitol [VITOLV.UL] also has two tankers carrying 260,000 tonnes of Brazilian crude, and Shell and Repsol SA have 560,000 tonnes, also heading to China.

Wood Mackenzie analyst Ixchel Castro said exports also have been boosted by weaker domestic consumption from the country’s deepest recession on record. An economic recovery could siphon some of the exports.

(Click here for a graphic on 'Brazil's crude production' here)

Additional reporting by Luciano Costa; Editing by Gary McWilliams and Marguerita Choy