Thursday, April 16, 2009

Brazil Oil

I think the overall interest within this class is significantly lacking in the oil and gas sector. This blog is dedicated to that reliable oil industry we so easily turn our heads from and ignore. The oil potential in Brazil is a great example of the continued discovery of large oil fields as we so quickly want to move away from fossil fuels.

According to the Oil and Gas Journal, Brazil had 12.2 billion barrels of proven oil reserves in 2008. This makes Brazil the second-largest producer in South American behind Argentina. The above graph from the Energy Information Administration shows the historical rate of oil consumption and production in Brazil. It is reasonable to assume that Brazil will become a major exporter of oil in the near future as their production exceeds there consumption. It is important to note the stable oil consumption in Brazil over the past 10 years, this may be directly linked to their effective ethanol industry. Brazil's ethanol is stabilizing their oil consumption as they significantly increase their oil production, something United States attempted to do but is failing miserably with their corn-based ethanol industry. The entrance of such countries like Brazil in the oil market supports the continued growth of global oil reserves.
With new deep water discoveries by Petrobras, the Brazilian national oil company, the country is invested hundreds of billions of dollars to develop these deep water carbonate reservoirs. There investments extend to UT-Austin as Petrobras is one of the major sponsors of the RCRL research group at the Bureau of Economic Geology. It is clear Petrobras knows what magnitude of reserver they are dealing with, as they take a bullish approach to their reserve development compared to other companies like ExxonMobil and Chevron, which are more or less trying the weather the economic storm.
Unlike Argentina, Brazil is more industrialized and not as concerned about exploiting their oil reserves at the highest possible price. With this mindset, more industrialized countries like Brazil and Norway with significant oil reserves are becoming a concern to OPEC countries that have historically controlled the oil market. This can be seen right now after the plummet in oil price, OPEC is attempting to drive the price back up by cutting production. The problem is that countries like Brazil, Norway, and Russia could eventually fill any cuts in production from OPEC.
This week Bloomberg reported a decline in demand as U.S. retail sales dropped. With this drop in demand there has been a large increase in oil supply. The American Petroleum Institute reported that stockpiles rose 6.51 million barrels to 371.2 million barrels, the highest increase in supply since 1990. With new oil superpowers like Brazil and a decrease in demand, it is clear that our oil supply is stable despite what many people want to believe. Essentially the apple orchard has more trees.

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