Surprise! Brazil Disappoints With February Oil Production Figures



  • Brazil's February oil production was a major disappointment to the downside.
  • February oil production came in sub 2.5 mb/d, while IEA pegged it at 2.8 mb/d.
  • IEA believes Brazil's oil production will exit 2019 at 3.3 mb/d, a 800k b/d increase from February.
  • There are only 3 new FPSOs coming online in 2019 (one delayed from 2018), making it almost impossible to reach this level.
  • And, because Brazil will disappoint, not only will the global oil market supply and demand balance be thrown out of balance but so does the issue around crude quality.
  • Looking for a community to discuss ideas with? HFI Research features a chat room of like-minded investors sharing investing ideas and strategies. Start your free trial today »

Welcome to the "never disappoints" edition of Oil Markets Daily!

Another month of data for Brazil's oil production, and another disappointment.

Brazil's oil production was lower m-o-m in February by ~142k b/d. This puts Brazil's oil production at 2.489 mb/d.

Why is this significant?

Source: IEA

Because, according to the IEA, Brazil is one of the key contributors to supply growth this year. Brazil is supposed to add some ~350k b/d y-o-y, according to the IEA. In addition, it would grow production by nearly 600k b/d exit-to-exit by the end of 2019 (you can also eyeball the chart).

With the February production data coming in shockingly below the estimate of ~2.8 mb/d, it is only a matter of time before everyone takes out their pencils to revise Brazil's production growth lower... again.

This is going to stunt non-OPEC ex-US growth, because if Brazil can't grow production, then the decline in non-OPEC ex-US will be even larger than anticipated. Canada's oil production will be limited by the mandatory Alberta production cut agreement, and so the growth from the two pivotal non-OPEC ex-US supplies will be nonexistent.

What's even scarier for the global oil market is that Brazil's production increase was supposed to help fill some of the void in the "crude quality" discussion. The lack of sour crude globally is gaining steam, and with global refineries exiting out of maintenance season by the end of April, the discussion around a prolonged shortage of heavy sour crude will escalate.

So, not only does Brazil's disappointing production growth send the oil market balance out of whack but it also sends the crude quality balance even further out of whack. The implications are enormous.

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