Will Brazil Soon Join OPEC?

RIO DE JANEIRO, BRAZIL – (ECNS China) Jair Bolsonaro said that he would “personally like Brazil to become a member of OPEC” and that the partnership between Brazil and OPEC could help stabilize global energy prices, says ECNS China in its latest report.

“I think the potential is there. We have vast oil reserves,” he said at an investment conference on Wednesday in Riyadh, adding that he had got an informal invitation from Saudi officials to join OPEC, but he would have to consult economy and energy ministers before making a decision.

There was no immediate public comment from Saudi authorities. But Saudi state media said Bolsonaro and Crown Prince Mohammed bin Salman “discussed ways to enhance bilateral investments between the two countries”.

The 14 current members of OPEC are primarily in the Middle East and Africa, but include Venezuela and Ecuador. The latter plans to exit the group next year.

Whether Brazil joins OPEC, Bolsonaro’s words could indicate his determination to make reforms in the energy sector, as he had already done in some other sectors, and to create a more open environment for the industry, said Zhou Zhiwei, a researcher from the Chinese Academy of Social Sciences.

“If Brazil is to join OPEC, it will be a great boost for the reforms in its domestic energy industry,” he said.

Brazil’s oil output from its offshore fields has increased greatly. According to its oil regulator, ANP, Brazil’s oil production reached a record high of about 3 million barrels per day in August, an increase of 18.5 percent from the same period in 2018.

This week, a dozen companies are expected to take part in a large oil rights auction for already developed fields located off Brazil’s southeastern coast. It is expected to reap a record-high windfall of more than $25 billion for the country, according to Brazil’s National Petroleum Agency (ANP). Participants of the auction include global oil companies and Brazil’s state-run Petrobras.

Zhou said that the bidding is also a signal that Brazil is further opening its energy industry to the global market.

“More than 90 percent of Brazil’s oil reserves are offshore, whose exploitation requires a large amount of capital and high-end technology,” he said. “The coming of overseas capital and companies could also boost reforms in Brazil’s own oil companies and industry.”

He Yun, an assistant professor at Hunan University’s School of Public Management, said that Bolsonaro wants to better integrate its energy industry with the global market, but doubts that his wish to bring Brazil into OPEC will be realized soon, as OPEC would likely ask Brazil to limit oil production.

That would conflict with the goal of the upcoming oil rights auction to greatly boost oil output. OPEC, led by Saudi Arabia as the top exporter, has tried to persuade several non-member oil states to limit oil supply, so as to boost global prices.

“Joining OPEC means Brazil would be obliged to reduce supply and follow other restrictions, which might hurt some related parties’ interest,” he said.

She said that it is easy to understand Saudi Arabia’s willingness to invite Brazil to the group, as Brazil is a large producer and would be the group’s most significant new member in years.

“The output of OPEC now accounts for about 40 percent of the world oil market. If Brazil joins and reduces its output, the share of the OPEC countries would increase to about 43 percent, which might help to raise the global oil price,” she said.

(Source: ECNS China)