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Oil producer OPEC overlooks

While everyone is talking about how US crude oil production will offset a large part of OPEC / non-OPEC's ongoing production cutbacks, there are other oil producers who will not participate in the OPEC + deal and see their production increase this year.

The record-breaking US oil production will lead the growth of non-OPEC providers this year, with all analysts and estimates in line. Second in terms of production growth among non-OPEC non-OPEC countries is Brazil. Here, several new start-ups and production ramp-ups will generate the country's highest annual oil growth for at least two decades.

The latest estimates from the International Energy Agency (IEA) and OPEC show that Brazil's output growth this year will reach 360,000 bpd this year from 2018 and Brazil will have the second highest supply growth ahead of the United States.

The rising production in Brazil, in addition to production growth in the US, will lead to a greater supply of crude oil worldwide, at a time when OPEC and its non-OPEC partners led by Russia are refusing to produce 1.2 million barrels a day to rebalance the market and drive oil prices up.

The record high of US production and the forecasts of continued growth until 2019 and 2020 have lowered oil prices in recent months. The EIA estimates in its recent Short-Term Energy Outlook (STEO) that US oil production in January 2019 averaged 12.0 million Bpd. This represents an increase of 90,000 bpd compared to December 2018. US production stands at 12.4 million bpd in 2019 and 13.2 bpd in 2013. Most of the growth comes from the Permian. Related: Kicking Mexico's dependence on US natural gas

In addition, Brazil's production is expected to increase by 360,000 barrels a day this year, and OPEC and its allies may consider extending the cuts beyond its current expiration date in June 2019. OPEC + will reconsider the agreement in April.

Although each decision will depend not only on production growth outside the agreement, but also on supply cuts in Iran and Venezuela due to US sanctions and global demand growth forecasts, Brazil is expected to contribute to more supply in the oil market in two months and further complicate their bid estimates for OPEC and its allies.

Brazil has failed to achieve the expected high production growth in recent years due to various project delays, but this year both the IEA and OPEC see an increase in oil supply by the Latin American manufacturer.

The IEA expects Brazilian oil production to grow at an average of 365,000 barrels a day in 2019 as a number of new production units are on track to get started. Oil production in Brazil declined by 40,000 bpd to 2.7 million bpd last year. This year, production will reach an average of 3.06 million bpd, the IEA estimated in its oil market report in January.

According to Bloomberg estimates based on IEA figures, Brazilian oil production growth this year would have been the highest for at least 20 years.

In turn, OPEC said in its February monthly oil market report that Brazil will increase oil production by 360,000 bpd in 2019. Heavy maintenance last summer and strong withdrawal rates on the mature Campos Basin fields as well as delayed start-up of several pre-salt projects in the Santos Basin weighed on Brazilian production in 2018, which OPEC, like the IEA, also expected to have 40,000 bpd contracted. Related: Permian production is expected to reach 4 million Bpd in March

This month alone, Petrobras, the Brazilian state-owned oil company, announced the start of production of two projects in the Santos basin prior to salt production via floating FPSO vessels (FPSO). One of them is the P-67 platform with a capacity to handle up to 150,000 bpd in the Lula Norte area in the Lula field, which is currently the largest production area in Brazil and is expected to reach 1 million bpd this year becomes. The other is the P-76 platform, the third platform to be commissioned in the Búzios field in the Santos Basin and also designed for a capacity of 150,000 bpd. This was the second platform to be launched in 2019 from a total of four platforms planned this year, Petrobras said Wednesday.

"Oil production could increase significantly in 2019, with delayed FPSO vessels and other planned assets operating on time during the year," OPEC said last week in its MOMR on Brazil.

The cartel also noted that "Brazil has never exported so much crude oil as in 2018." Brazil's crude oil exports averaged 1.12 million bpd last year, an increase of 13.3 percent compared to 2017 , which accounted for about 40 percent of total production.

Energy Research Company (EPE), affiliated with the Ministry of Mines and Energy, estimates that oil production in the pre-salt regions will double in the next eight years, and that the country will become one of the world's top five exporters " OPEC said.

Brazil's copious saltwater basin would be a boon to the country's oil, but it could be OPEC's attempt to rebalance the market.

By Tsvetana Paraskova for Oilprice.com

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