In a world that doesn’t know what to do with so much crude, Petrobras and Exxon Mobil Corp. have just found a large amount off the coast of Brazil.

Petroleo Brasileiro SA, as the state-owned oil producer is officially called, announced a discovery with partners that the Brazilian oil regulator’s estimates estimated at 7.8 billion barrels. That’s a little less than Norway’s reserves, although only a part can be recoverable.

The finding comes at a time when the incentive to develop new reserves seems doubtful. Petrobras was the first major oil producer to announce production cuts as the price war between Saudi Arabia and Russia and the COVID-19 pandemic expose how vulnerable the global oil market is to supply and demand shocks.

Before the dramatic oil collapse last month, experts were already pointing to oversupply and stabilizing global demand by the end of this decade.

But Petrobras says that production costs in the pre-salt area from which the oil was extracted can be covered with oil prices in the range of US $ 21 to US $ 25 per barrel. Brent, the global benchmark, rebounded to nearly $ 30 on Thursday.

Petrobras and Exxon operate the Uirapuru prospect in the prolific pre-salt region of Brazil, with 30% and 28% stakes, respectively. Norway’s Equinor ASA has another 28%, while an association between Portuguese and Chinese producers owns the remaining 14%.

The discovered block is about 200 kilometers off the coast of the state of Sao Paulo, at a depth of 1,995 meters.

Brazil sold the drilling rights to Uirapuru for 2.65 billion reais (US $ 500 million) in 2018, a year in which oil was trading between US $ 50 and US $ 86 per barrel. The hotly contested auction had offers from companies such as BP Plc, Total SA, Royal Dutch Shell Plc and Chevron Corp. Equinor said at the time that Uirapuru had the potential to add twice the company’s annual output.

Petrobras is not alone in adding more potential oil supplies to the world in the future. Apache Corp. announced another major oil discovery off the Suriname coast.


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