Collapsing oil prices raise debt challenge for Petrobras
The barrel of WTI crude, the US market benchmark, was traded at a negative price Monday for the first time. Prices rebounded above zero Tuesday but there are still many doubts about the effects of the recent collapse of the American market for Petrobras. Analysts told Valor the Brazilian oil company will hardly be forced to trade oil at negative prices, but in a highly globalized industry, the company is expected to be indirectly impacted by the unparalleled situation in the US.
No oil company will be unscathed by the current crisis in the oil and gas industry. The unprecedented contraction in demand in the face of the economic crisis unleashed by the novel coronavirus pandemic and the oil glut put downward pressure on prices. It reduced the state-run company's cash-generating capacity and jeopardized its deleveraging effort. Yet Petrobras operates with another benchmark: Brent crude.
In order to better understand what the historical fall of WTI prices means for Petrobras, one must know the nuances of what happened Monday in the US and, considering all the oil market's acronyms, avoid getting lost. The West Texas Intermediate (WTI) is a type of crude oil from the West Texas Permian Basin used as a benchmark for trading. It is the commodity specification used as a benchmark in the trading of US oil, which is mostly produced onshore. Brent is a mix of crude oils produced in the North Sea considered a global benchmark.
What happened Monday with WTI, therefore, mirrors a very characteristic condition of the American market. Helder Queiroz, a professor at the Federal University of Rio de Janeiro (UFRJ) and former director of the National Agency of Petroleum, Natural Gas and Biofuels (ANP), says the drastic drop of WTI was caused by a combination of a structural factor of the American oil market and financial speculation. "It is an absolutely abnormal situation unlikely to endure," says Mr. Queiroz, who does not see falling WTI directly impacting the Brazilian market. "There is a full decoupling between Brent and WTI," he said.
Crude oil is traded in futures markets. The WTI contract expired on Tuesday while the market had already experienced a liquidity shock on Monday in the face of poor demand prospects and signs that US inventories are too high. Fearing that existing storage capacity could run out, those who still held May contracts rushed to liquidate them as buyers remain in short supply. The lack of liquidity then pushed the May contract...
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