Brazil and Iraq decrease oil output

The decrease of oil exports from Brazil and Iraq may cause the now-low prices of the commodity to suddenly rise.

 

The decrease of oil exports from Brazil and Iraq may cause the now-low prices of the commodity to suddenly rise. While the two countries are cutting back, this change could mean an increase in the scope of the U.S. shale industry.

Forecasted additions, actual subtractions
Both Brazil and Iraq were believed to be extending their oil output, adding over 2 million barrels per day by 2020 and by another 2.5 million bpd by 2025, the International Energy Agency reported. Instead the countries are lowering their standards. Although it may be quite a difference for Brazil and Iraq, many believe this change will alter the market for the better.

"Demand will have its say but from a supply perspective it is hard not to believe the seeds of the next price spike are being sown today," said Deutsche Bank on June 30.

Instead of becoming two of the world's largest exporters, both Brazil and Iraq are seriously curbing their production. Petrobras, Brazil's multinational energy corporation, already curtailed its five-year plan due to the low oil prices plaguing the global market by 1.4 million bpd. Iraq, on the other hand, is attempting to find ways to obtain practical oil objectives by extending their talks with other oil majors.

Brazil's Finance Minister, Joaquim Levy, believes this move is for the best.

"All the majors are [cutting] because oil prices are down," said Levy. "That's how it should be done. The price is down; you factor that into your core business."

Still feeling the aftermath from OPEC
Since the Organization of Petroleum Exporting Countries decided against cutting its output, U.S. oil exports have begun to slow down. Many drilling rigs were stalled or completely stopped due to low prices of oil globally.

Although this decision was made June 30, it wasn't the first time both Brazil and Iraq felt pressure to cut back on their production. Both countries received warnings from the IEA prior to this transition to downsize their outputs due to the rise in non-OPEC oil on the market.

The IEA is now reviewing these outlooks. Brazil and Iraq's goal to become two of the top five oil producing countries by 2020 seems to be under contention at this point.

The U.S.'s shale production is still in a good state, however. According to Reuters, independent firms can switch off their output easier than projects in Brazil and Iraq. In addition, due to the amount of shale still being found, the cost of the oil can be lower on the market ($70 a barrel or less) and still survive. The same is not true of many oil exports around the world.

More information on Brazil's nuclear power can be found on PennEnergy's research area

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