Opinion: Petroleum Futures

01/09/2015 - 10h08

One of the major global trends over the past month has been the collapse of the international price of petroleum. The continuing crisis at Petrobras is bad enough.

But this price rout in international oil prices, together with the slackening in global demand, and international crude oil surpluses, has brought with it a profound shift in petroleum futures which has immediate consequences for Brazil's prospects in this key area.

Petroleum is, after all, the bedrock of the international economy, and the basis of much hope for Brazil's future economic growth and increased international leverage and competitiveness.

This week the European benchmark for Brent Oil for February delivery dropped to $54.72 a barrel on the ICE Futures Europe Exchange in London, its lowest level since May 2009.

In the United States, the Nymex February West Texas, the US benchmark, fell below $50 a barrel on the New York Mercantile Exchange, its lowest level in five years, and traded at the beginning of the week at $49.95 a barrel for the first time since April 2009.

The result was to send international energy stocks into a tailspin and stir fears among investors on Wall Street and London of a global economic slowdown.

This also presents challenges for Brazil which has been counting on high international prices for crude oil in order to help finance its vast, but difficult and expensive, underwater off-shore petroleum resources, where foreign involvement and participation is an essential component.

Yet President Dilma Rosseff chose in her inaugural address to blame "external enemies" for Petrobras's (self-inflicted) problems. In fact the major international oil companies have been the major losers this week, their stocks all losing value on the London and New York stock markets.

Brazil is not a Venezuela to be sure. Much less is it a Saudi Arabia, Kuwait, Iraq, or Russia. Nor is it a Nigeria or Angola. All of which are almost exclusively dependent on oil and gas exports.

Brazil's economy is more diversified and (potentially at least) more resilient. Consumers may initially benefit from lower transportation costs.

But Brazil could be collateral damage as Saudi Arabia plays its petroleum card to its own advantage by not to cutting back on production in the face of the fall in prices.

Saudi Arabia has the world's largest and cheapest reserves, and it is prepared, it seems, to play a high stakes in the petroleum price war game, with an eye on thwarting competition from the US shale oil production, its major new challenger, which needs to sustain at least $80 a barrel price level to remain competitive.

Gyrations in the price of petroleum has over the past decades have been a major cause of global disruption and pain. Unfortunately it looks very much as if it may play such a role again in 2015.