Oil prices will not return to $ 60 a barrel, says Castello Branco CEO of Petrobras

May 6, 2020

Petrobras President Roberto Castello Branco said on Tuesday that he expects the global economic recovery to proceed slowly after the new coronavirus pandemic. Given this, he does not believe that oil prices will return to the level of $ 60 or $ 70 a barrel.

“The adjustment mechanism [of the industry to the crisis] must be slow, it depends on the recovery of the global economy, which must be slow. There will be cuts in the production of producers with higher costs. In the American shale, there are many small leveraged companies small and will be forced out of the market “, said Castello Branco.

“There will be a balance, but we believe that the price will not return to the levels of US $ 60 to US $ 70 a barrel, as we saw last year,” said the executive during an online event.

The executive pointed out that, amid the fall in oil prices, on the international market, the company has already reduced gasoline prices, at refineries, by 52% this year. In the case of diesel, the drop is 48%. “We show that the rule [of international price parity] is also down,” he said.

According to him, however, the company will have “no resistance” to increase fuel prices, if necessary, in the coming weeks. “We are ready [to readjust]. If we find it necessary, we will do it. We have no difficulty in raising prices,” he said.

Castello Branco stressed that this is the “worst crisis in the oil industry in the last hundred years” and recalled that, in April, the estimate was for a drop in demand of 30 million barrels per day.

“We had a sudden stop in demand. So, we need to react quickly. The quick response is very important to avoid burning cash. It has to be contained as quickly as possible, otherwise it dies or is in serious condition,” he said.

“That’s what we did. We are looking for ways to sell more to make cash,” he said of Petrobras’ export growth, which in April reached a record level of 1 million barrels per day.

“Not a penny from the government”

Castello Branco said the state-owned company will not ask the government “for a penny” amid the crisis in the oil sector. According to him, Petrobras is well financially in the short term to face the price shock.

“We have no intention of asking for a penny from the government, no loans to BNDES or Caixa, no tax incentives. We are not going to do any of that, this is prohibited. We are the owners of our destiny”, he commented.

As part of the company’s cost reduction initiatives in the face of low oil prices, he mentioned that he has been renegotiating contract terms with major suppliers, including extending terms and postponing the delivery of equipment. “We already have some negotiations right.”

Sale of assets

The executive said that Petrobras maintains the forecast of signing the sale contracts of its refineries until the end of the year and concluding the deals in 2021. The state-owned company still continues to monitor opportunities for the sale of Braskem and an additional share in BR Distribuidora via the market of capital.

“This remains standing. We have not received a negative sign of withdrawal from anyone [by the refineries],” he said.

Castello Branco commented that it is natural that, in the midst of the crisis, the divestment plan will suffer delays, but that interest in the company’s assets remains.

“We have seen the demonstration of renewed interest on the part of buyers. We will hardly close any transactions in the next two months, but we hope that, by the end of the year, some assets that have already received proposals will be sold,” he said.

Asked if the company is considering selling pre-salt assets, given the need to make cash, he replied that the company has “no intention” of selling this type of asset.

Regarding the interest in a new secondary offer of the company’s shares in BR, he said that this “is a possibility, but that it has to wait a while”, given the high volatility of the stock exchange and the bad moment of the global economy.

Castello Branco also pointed out that “several obstacles have already been overcome” for the company to transform Braskem into a corporation. “We have to be patient,” he said.

“I see that we have a good opportunity. As the world economy recovers and volatility decreases, we will be able to exit via the capital markets. I believe that the capital markets are always the best solution,” he added.

Relations with China

Asked about rumors of Brazil’s diplomatic relationship with China, the president of the state-owned company said that he did not fear that “political issues” could weaken the company’s commercial relationship with the Asian giant.

“Brazil is one of the global strongholds of natural resources and China is an industrial economy and lacking in commodities. There is a complementarity between the two economies,” he said. “China is a big market and we will continue to explore it”.

Castello Branco pointed out that, after a “deep recession” in the first quarter, China “is being reborn”, which brings good prospects for Petrobras’ exports.

“Petrobras’ oil already has a recognized standard in China, where there are private refiners who greatly appreciate the quality of our oil,” he said in reference to the low sulfur content of the pre-salt oil.

Source Petrobras Agency

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