China’s Crude Oil Thirst Drives Brazilian Exports to All-Time High

Brazilian crude oil exports hit a record high in December 2019 with a total of 8.7 million tons of crude oil exported, as China continues to turn to Brazil for crude, according to BIMCO. 

As explained, the December picture matches the overall trend which shows that China has increasingly gone to Brazil to cover part of its crude oil demand.

The previous monthly record for Brazilian crude oil exports of 8.1 million tons was set in July 2018, at which time 41% of the crude oil was sent to China. In December 2019, 64% of total crude exports went to China, the shipping association informed.

In 2019, 63% of Brazil’s total crude oil exports went to China. That was a 42% jump over a five-year period, from 20% of crude exports in 2014. Brazilian exports to China grew by 21% in 2019 compared to 2018.

While the lion share of Brazilian crude oil was shipped to China, Brazil only accounted for 8% of Chinese crude oil imports through the first 11 months of 2019.

“US crude oil exports have been the talk of the town in past years, yet crude oil exports from Brazil are also proving to be an interesting development to watch out for,” Peter Sand, BIMCO’s Chief Shipping Analyst, commented.

“The record-breaking Brazilian crude oil exports in December bring a positive development to the crude oil tanker market with a strong tonne-mile upside generated by the long-haul trade from Brazil to China.”

Record-breaking oil production in Brazil

Brazilian crude oil production has steadily risen in recent years, driven largely by oil extracted from the pre-salt oil deposits located offshore on the Brazilian continental shelf under thick layers of rock and salt.

Data from Brazil’s National Petroleum Agency (ANP) indicates that roughly 95% of Brazilian oil is produced offshore. Extracting offshore oil deep underneath the surface is a costly process, often requiring the use of floating production storage and offloading (FPSO) ships.

Nonetheless, Brazil has managed to ramp up production in recent years. In November 2019, a total of 3 million barrels per day (m/bpd) were produced, a 20% jump compared to November 2018.

From 2010 to 2018, annual average oil production rose 34% from 2m/bpd to 2.6m/bpd, which is set to be surpassed by a fair margin in 2019, having averaged 2.7m/bpd in the first 11 months of the year. November 2019 marked the highest level of production ever with a total of 3m/bpd produced, a 20% jump compared to the same month in 2018.

Petrobras, the largest Brazilian oil major accounting for roughly 75-80% of all oil production, has outlined an annual production target of 2.2 m/bpd for 2020, which is set to grow annually to 2.9 m/bpd in 2024. Petrobras’ target indicates stable growth for Brazilian oil production in the medium-term, which will surely be a growth driver for the country’s crude oil exports, BIMCO added.

“Brazilian crude oil production has risen steadily over the past decade, with the exception of 2018. With future production estimated to follow the same growth rate, Brazil could increasingly become a driver of crude oil tanker tonne-mile growth in the coming year, especially if China sustains its increasing appetite for the Brazilian crude oil,” Sand further said.

The majority of the crude oil is shipped on long-haul trades, facilitating a positive ton-mile upside to the shipping market. Brazilian crude oil is medium-heavy with relatively low sulphur content, which could partly act as a substitute for Venezuelan crude oil. There is no massive difference in shipping distance if importers substitute Venezuelan crude oil for Brazilian crude, the shipping association noted.

Will the US-China trade deal affect Brazilian exports?

The recently inked US-China phase one trade deal, in which China has committed to increasing its imports of, amongst other things, energy commodities, could slow the ton-mile growth of Brazilian exports if the deal results in trade diversion rather than trade creation, BIMCO believes.

However, several factors, including China’s energy supplier diversification and yearly growth, point in the other direction.

“It may however be too early to forecast whether China will divert its crude oil imports from Brazil to the US.”

“Whatever the outcome from the US-China phase one trade deal, Brazilian crude oil exports have, for the time being, brought a positive development to the crude oil tanker market, which experienced high fleet growth in 2019,” the shipping association concluded.

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