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Montevideo, December 10th 2016 - 12:41 UTC

Oil price plunge distorts Brazilian market and leaves Rio cash strapped

Monday, January 25th 2016 - 10:36 UTC
Full article 9 comments
“Brent Dated” index, based on a seven-day rolling average price for crude, will be used up to the price level of $50 a barrel, said the decree signed by Rousseff “Brent Dated” index, based on a seven-day rolling average price for crude, will be used up to the price level of $50 a barrel, said the decree signed by Rousseff
Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology
Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology

Brazil's President Dilma Rousseff approved a resolution to maintain the current system for establishing the minimum price of oil on which royalty payments are paid by state-run oil company Petrobras to local governments.

 The so-called “Brent Dated” index, based on a seven-day rolling average price for crude, will be used up to the price level of $50 a barrel, the National Energy Policy Council said in the official government gazette on Friday.

Brent crude has fallen by more than half to $31.29 per barrel, from a 2015 peak of $67 per barrel. The plunge has dried up government revenues in many oil exporting countries.

Although not a major oil exporter, Brazil is struggling to curb growth in federal and state spending in the face of falling revenues. For states such as Rio de Janeiro, oil revenues are vital to funding public services.

Rio de Janeiro state, responsible for two-thirds of Brazil's oil output and 40% of its natural gas. Rio has been pressing the government to update the price methodology. The dispute has raised the perception of risk in Brazil's oil industry, adding to some investors' to opposition to Royal Dutch Shell Plc's $49 billion purchase of BG Group Plc, Brazil's No. 2 oil producer.

In December, unable to win changes from the government and facing a financial crisis, the state of Rio de Janeiro imposed taxes and fees on oil production. Rio hopes to raise 1.84 billion reais ($450 million) this year from the taxes. State officials believe the royalty formula undervalues growing volumes of valuable light crude from giant new “subsalt” fields off the coast.

Instead of higher royalties, producers such as Petrobras, BG, Shell, Portugal's Galp Energia SGPS SA, Norway's Statoil ASA and Spain's Repsol SA now face higher taxes.

Edmar de Almeida, economist at the Federal University of Rio de Janeiro, says the taxes put “subsalt” development at risk by cutting revenue by about a quarter.

With the taxes, the crude price needed for subsalt areas to break even rises to $60-80 per barrel from $40-50 a barrel. Late Friday, Brent crude futures traded at $31.52, down from more than $100 a barrel in late 2014.

While industry officials plan a court challenge, Rio is sticking to its guns. The state's budget crisis has left public servants unpaid, cut spending on Rio's 2016 Olympic Games in August, and turned the sick away from hospitals.

Top Comments

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  • yankeeboy

    That's a really quick way to get rid of all of your production and send the Int'ls out of the country.

    I told you the Marxists would go back to type. Tax Spend Deflate Crash
    Its all they know.

    Jan 25th, 2016 - 01:15 pm 0
  • Jack Bauer

    The fat cow puts her foot in her mouth, yet again. She thinks she can legislate her way out of the crisis. Resigning would be a solution.

    But I'm interested in hearing the BRasshole's take on the price of crude extracted from subsalt areas, needed to break even..........he told us last week that the cost was of extraction was only US$ 8 to 9 per barrel....

    Brasshole ???

    Jan 25th, 2016 - 03:33 pm 0
  • ChrisR

    @ 2 Jack Bauer

    He forgot the zero after the 8 or 9!

    DumbAss Dilma can't help but do exactly the wrong thing every time.

    I wonder if the Military are firming up their plans to sort this crap out once and for all?

    Jan 25th, 2016 - 06:33 pm 0
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