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Bolsonaro wants Brazil to join OPEC

Bolsonaro wants Brazil to join OPEC

If it joined, Brazil could become OPEC’s third-biggest producer after Saudi Arabia and Iraq

Brazil’s president welcomed an informal invitation from Saudi Arabia for his country to join OPEC and said he’d be eager to accept.

The Saudi offer highlights Brazil’s growing importance as an oil producer as well as the challenge it poses to the producer group’s influence on crude markets. President Jair Bolsonaro said he received the invitation on Wednesday after holding meetings this week with senior Saudi officials including Crown Prince Mohammed Bin Salman.

“It is the first step for maybe putting in place this policy in Brazil,” he said on the sidelines of a conference in Riyadh. Bolsonaro said he needs to consult with his economic team and energy ministry before agreeing to join, adding in a panel discussion that he was keen for Brazil to accept the invitation.

Read: Saudi Arabia’s sovereign fund to invest $10bn in Brazil

Joining the cartel wouldn’t be straightforward. In past administrations, national oil company Petroleo Brasileiro SA rejected the idea, arguing that it has obligations to its investors and debt holders, and that the government doesn’t have power to determine production levels of private operators.

Former President Luiz Inacio Lula da Silva also toyed with the idea of joining the Organization of Petroleum Exporting Countries in 2008 but his overtures never came to anything. Lula’s energy minister rejected the offer by saying Brazil had other priorities, and the country for years has been moving in the opposite direction by surrendering state control to attract free enterprise.

The timing of Bolsonaro’s comments could not be more awkward as the world’s biggest oil companies, including Exxon Mobil Corp. and Royal Dutch Shell Plc, are set to vie for Brazil’s deep-sea deposits in a November 6 auction that could be the industry’s priciest ever. They see Brazil as one of the few areas in the world with vast amounts of untapped, low-cost oil open to private investors, unlike the Middle East which is dominated by nationalized entities.

Petrobras wants to increase production levels, CEO Roberto Castello Branco said Wednesday in a presentation in Rio de Janeiro. He didn’t directly address the OPEC invitation. Petrobras and Brazil’s energy ministry didn’t immediately respond to requests for comment.

Brazil’s burgeoning production runs counter to OPEC’s effort to reduce crude supply and prop up crude prices in the face of booming supply from US shale fields and weakening global demand. If it joined, Brazil could become OPEC’s third-biggest producer after Saudi Arabia and Iraq.

Brazil’s oil reserves are bigger than those of several OPEC members, Bolsonaro said. Brazil and OPEC could form “a great partnership,” helping each other to stabilize global fossil fuel prices.

Several countries have joined or left OPEC in recent years, but Brazil’s output dwarfs that of the organization’s newest members. Gabon re-joined OPEC in 2016, while Equatorial Guinea and Congo signed up in 2017 and 2018, respectively. Indonesia suspended its membership in 2016, saying it had become a net importer of oil. Qatar quit in January, and Ecuador said it would withdraw as of January 1.

Brazil produced 2.71 million barrels a day 2018, according to the International Energy Agency, which forecasts the country’s average output to reach 2.9 million this year and 3.22 million in 2020. Brazilian crude production surged to 3.13 million barrels a day in September, the IEA said its latest monthly report.

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