Petrobras to Cut Output by 100,000 Bpd by End-March as Part of Coronavirus Response -- Update
2020年3月27日 - 2:35AM
Dow Jones News
By Jeffrey T. Lewis
SAO PAULO--Brazilian oil producer Petroleo Brasileiro SA, or
Petrobras, said Thursday it will cut production by 100,000 barrels
per day by the end of March, the first reduction by a big
state-controlled producer since demand and prices plummeted in the
wake of the coronavirus pandemic.
Saudi Arabia cut its prices earlier this month after Russia
opposed a Saudi plan for the Organization of Petroleum Exporting
Countries to reduce output in response to the drop in demand. The
Russians said they would boost production in retaliation, ending
the country's cooperation with OPEC and helping send the price of a
barrel of oil down by about half in a month.
With economic activity grinding nearly to a halt in many
countries amid lockdown orders, demand for oil will remain weak for
months or longer, analysts say. Global demand for oil will fall to
18.7 million barrels a day in April, according to an estimate by
Goldman Sachs.
Given that steep drop in demand, Petrobras's decision to cut
output won't resolve the current production glut by itself, but it
is a good idea for the company, said Pavel Molchanov, an analyst at
Raymond James.
"With prices so depressed, it's a smart move to say we won't be
depleting our reserves for $25 a barrel," he said, adding he
doesn't expect many companies to follow suit. "Cuts to capital
spending are universal, everyone is doing it. But for most
companies, if they can generate even a little bit of positive cash
flow from producing an extra barrel, they'll produce that
barrel."
Rio de Janeiro-based Petrobras has an average oil production
cost of $32.10 a barrel, according to Rystad Energy, more than the
current price of a barrel of Brent crude. The company said it will
continue to evaluate market conditions and make more adjustments to
production as needed as part of its response to the impact on
demand of the spread of the coronavirus.
"Petrobras is continuously monitoring the internal and external
markets, as well as managing inventories and oil refining at its
refineries, in line with the variations in market demands," the
company said in a note.
Cutting production will also ease pressure on the country's
tight storage situation. Brazil has 1.6 days worth of storage
available if no production is moved onward, the second-least
storage among major oil-producing countries after Nigeria,
according to IHS Markit.
Petrobras has spent the past decade ramping up production from
its rich new offshore fields, while shutting down or selling off
older, less productive fields. It hit record production of 3.025
million barrels of oil equivalent per day in the fourth
quarter.
Its production target for this year was 2.7 million barrels of
oil equivalent per day, with a variation of 2.5% in either
direction depending on market conditions.
The company has also announced a series of other measures to
help it adapt to the coronavirus crisis, including shutting down
higher-cost platforms in shallow water, postponing a dividend
payment announced in February, reducing or postponing 2.4 billion
reais ($475 million) of spending on human resources and cutting
investment this year to $8.5 billion from $12 billion.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
(END) Dow Jones Newswires
March 26, 2020 13:20 ET (17:20 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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