Since the election of President Luiz Inácio Lula da Silva last year, Brazil has been working to repair the damage done to its economy by former leader Jair Bolsonaro. Yesterday, though, the country announced an important decision that will likely impact one of its most prominent sectors. Specifically, Minister of Mines and Energy Alexandre Silveira de Oliveira announced that Brazil will be joining the Organization of the Petroleum Exporting Countries (OPEC+) cooperation charter, starting in January 2024.
OPEC+ is an organization created to ensure that oil-producing countries balance production in such a way that oil prices can remain competitive without exhausting supplies. Now, the prospect of Brazil joining OPEC+ is sending waves across multiple markets as experts consider what this means for the oil sector.
Will Brazil’s decision drastically impact oil production in the coming year? Let’s take a closer look.
Brazil Is Joining OPEC+
When Silveira discussed Brazil joining OPEC+, the official stated that the organization’s agreement has
“effectively protected the stability of oil markets.” The energy minister also noted that Brazil has benefited significantly from stability in oil and energy markets across the globe.
With that in mind, it makes sense that Brazil would opt to join OPEC+. The country has an opportunity to do its part to help keep oil markets stable. However, that doesn’t mean that it is agreeing to the same quotas as other OPEC+ members. S&P Global Commodity Insights reports that Brazilian delegates have revealed that Brazil doesn’t expect to take part in any production cuts.
That’s probably why state-owned oil producer Petroleo Brasileiro (NYSE:PBR) — often referred to as Petrobras — is in the green today. International oil giants that drill in Brazil, such as Exxon Mobil (NYSE:XOM) and BP (NYSE:BP), are also in the green. This positive reaction from the market suggests that Brazil joining OPEC+ won’t impact share prices negatively for either its oil producers or others U.S. names. This comes after the nation has reported healthy growth regarding its oil operations. Per Bloomberg:
“The Latin American giant exported an averaged of 1.8 million barrels of oil daily in the third quarter, an increase of 40% from a year earlier, according to official data. Better-than-expected production growth from Brazil and the US is helping to lift daily global supplies by 1.7 million barrels this year to a record, according to the International Energy Agency.”
What Comes Next?
As of now, it doesn’t seem like investors have anything to be worried about from Brazil joining OPEC+. If Brazil does decide to reduce its oil production, it could also end up benefiting U.S. producers by driving up prices. However, that doesn’t seem like a likely scenario. Petrobras CEO Jean Paul Prates has stated that Brazil’s publicly traded companies mean it cannot be subject to OPEC+ production quotas. If that is true, production is unlikely to change for either Brazil or the U.S., although both may benefit from the stability provided by a growing OPEC+.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.