Surprise! Brazil Disappoints With February Oil Production Figures

Apr. 02, 2019 2:34 PM ETUSO, OIL-OLD, UWT, UCO, DWT, SCO, BNO, DBO, DTO, USL, OLO-OLD, SZOXF, OLEM, WTIU, OILK, OILX, WTID, USOI, USOU, USOD, OILD-OLD1, OILU-OLD1, USAI120 Comments44 Likes

Summary

  • 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.

Thank you for reading this article. We recently launched our oil trading portfolio along with the HFI Portfolio. The oil trading portfolio is designed to take advantage of short-term long/short oil trades in the market. For readers interested in our positioning along with real-time trades, we are now offering a 2-week free trial. Here are the results so far:

This article was written by

HFIR profile picture
22.36K Followers
Author of HFI Research
The largest oil and natural gas research service on Seeking Alpha.

#1 Oil and Natural Gas Research Service on Seeking Alpha

----------

HFI Research specializes in contrarian investment analysis. We help you to find clarity in a world of uncertainty. We take contrarian thinking very seriously and believe that the only way to obtain a real edge in the market is to possess a contrarian investment thesis. We share our investment analysis with premium subscribers through daily and weekly reports.

----------

HFI Research Premium currently includes:

Oil Market Fundamentals - Our daily oil market report that discusses the current oil market fundamentals and the incoming price trend.

Natural Gas Fundamentals - Our daily natural gas market report that details current trader positioning, fundamentals, weather, and the incoming trade set-up.

Real-Time Trade Notifications - We actively trade oil and natural gas ETNs. In addition, we also issue real-time trade notifications on individual stocks.

Weekly EIA Crude Storage Forecasts - Every Saturday, we give the EIA crude storage estimate for the incoming week's report.

Weekly US Oil Production Forecasts - A weekly tracker for real-time US oil production so subscribers can understand what's happening to US shale growth.

What Research Reports We Read - A weekly report that covers all the research reports we read for the week, so subscribers can understand the market consensus and contrarian viewpoints better.

What Changed This Week - Our flagship weekly report.

For more info, please message us.


Follow

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (120)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.