Tuesday, July 15, 2008

Brazil Backs Growing Economy and More Oil Consumption




Brazil is putting economic development, including rising consumption of oil, as a priority despite having to buy oil after two years of self-sufficient production.

O Estado reports that oil producer Brazil has had to buy oil the first four months of 2008 and demand has been double the expected increase (5.8% actual increase over the 2.4% anticipated increase).

The Brazilian government doesn't seem worried. It has acted to lower Brazilian gas prices (currently about $5.90 per gallon) by reducing the per liter gas tax. The tax drop is 25%--dropping the rate from what would be equivalent to 88 cents a gallon to 65 cents a gallon. The gas tax vacation pooh-poohed here in some quarters has been taken seriously by the Brazilians (whose economic policies have seen a significant increase in value of the Real against the Dollar in the last 10 years).

Brazil has been able to meet its oil needs since 2006. The current oil deficit is a blip in Brazil's oil production plans. Brazil has massive oil reserves (including recently found huge offshore reserves that could make it an oil producer rivaling the big guns in the Middle East).

If additional drilling by Petrobras, as Petroleo Brasileiro is known, confirms the Tupi and Carioca estimates, the fields together would contain enough oil to supply every refinery on the U.S. Gulf Coast for 15 years. Petrobras said it needs at least three months to determine how much crude Carioca may hold.

Zeihan said that beyond supply gains from Brazil, it will take a tripling of Canadian oil-sands output and greater fuel efficiency to end Western reliance on Middle East oil.

The U.S. imports about 10 million barrels of oil a day, or 66 percent of its needs, according to the Energy Department in Washington. Saudi Arabia was the second-largest supplier in January, behind Canada.

Persian Gulf nations accounted for 23 percent of U.S. imports, compared with Brazil's 1.7 percent share. Brazilian crude output rose 1.9 percent last year to 2.14 million barrels, according to the International Energy Agency.


Brazil, a leader in alternative fuels use, has hands on experience with the reliability of alternative fuels. Despite decades of commitment to alternative fuels, Brazil is strongly backing oil.

Brazil's commitment to finding and using its massive oil resources puts it in the front line of the world's current and future economic powers. Its lowering of the gas tax at the pump not only eases the impact of oil price hikes on the average Brazilian but encourages business expansion.

This is a country to watch.

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