OPEC braces for more oil: Brazil's oil market rebound threatens output cuts strategy

Brazil has been missing in the oil 'action' this year. The country's daily output started at 3.73 million barrels and then plummeted nearly 25 per cent due to long-scale repairs. This also helped the Organisation of Petroleum Exporting Countries, or OPEC, to decide on the supply numbers and the subsequent cuts. OPEC's output cuts strategy aims to stabilise prices and balance falling demand with supply curbs.

Now Brazil has risen, with more than one-third of the deficit already covered. Brazilian oil fields are expected to overshoot the pre-collapse figure by roughly 200,000 barrels a day this year. This can potentially hurt OPEC's strategy, which now has to deal with excess Oil from Brazil. Brazil's president, Luiz Inacio Lula da Silva, has pushed to strengthen ties with OPEC and its allies but has refrained from any commitments to constrain output.

OPEC had recently extended output cuts well into 2025. This comes as slow demand growth in top oil importer China continues to weigh on prices amid rising volatility. We are currently witnessing an energy shift, from oil to cleaner forms of energy. This shift is a major factor in the declining demand. Supply cuts are hurting the wallets, but keeping the prices in balance is essential. Prices have risen above $80 per barrel. Goldman Sachs anticipates oil to touch $86 this summer. But the outlook remains grim. Citi forecasts oil prices will drop to $60 by 2025.

Add WION as a Preferred Source

Brazil still has challenges to counter. Petrobras and other oil drillers face environmental protests and standoff over wages. The strikes have already squeezed 80,000 barrels of daily output so far. Another issue is the fading crude production in Brazil's once 'crown jewel', Tupi. Petrobras is currently in negotiations to revive the falling output.