Brazil's Petrobras looks to China's 'teapots' to keep exports booming

• But Petrobras reversed those cuts later in the month in a surprise move.
• He added that Petrobras has the logistical capacity to boost oil exports 10% above the April record of 1 million barrels per day.
• Brazil's benchmark Bovespa equities index was down 1%.

RIO DE JANEIRO: Brazilian state-run oil firm Petrobras sees no need for short-term cuts in oil production, as the market for its products abroad remains robust, particularly in China, executives said on Friday.

On a call with analysts following the company's first-quarter results release, executives credited the company's strong relationship with independent refineries in China's Shandong Province, known as teapots, for allowing Petrobras to export a record amount of crude in recent months, even as some economies are effectively shut. Storage capacity for oil and gasoline was not proving to be an issue, they added.

Petroleo Brasileiro SA, as the company is formally known, had throttled back oil production by 200,000 barrels per day in early April, or almost 10% of its output, on fears that decreased worldwide demand would sap the company of places to store its crude.

That followed a similar move by other major oil companies, including Chevron Corp, which significantly scaled back its activities in the Permian Basin.

But Petrobras reversed those cuts later in the month in a surprise move.

Executives said on Friday demand for bunker fuel had remained robust, and they were seeing an increase in demand for gasoline and diesel.

Crude sales to China have been particularly key to bringing Petrobras through the demand crisis caused by the novel coronavirus pandemic, they said.

"Our commercial team has been developing a long-term relationship with Shandong refineries in China where our oil has strong demand even during the crisis because crude oil from the Lula, Iracema, Sapinhoa and Buzios fields have the same overall characteristics as specific Chinese oils ... that are experiencing declining production," Chief Logistics Officer André Barreto Chiarini said, referring to four offshore oil fields in Brazil.

He added that Petrobras has the logistical capacity to boost oil exports 10% above the April record of 1 million barrels per day.

Petrobras Downstream Chief Anelise Lara said the company expects demand for all products except for jet fuel to return to near-normal levels in the third or fourth quarter.

Still, one area where the company is facing significant challenges is its ambitious divestment program.

In results released on Thursday night, the company said it expected to sign sale agreements on at least some its refineries, by far the largest items on the block, by the end of the year. Lara appeared to temper those expectations on Friday, saying that the company expected to receive binding offers on the refineries in that time period, a step which typically precedes the closure of any sale by several months.

Executives also said on Friday they would dramatically reduce Petrobras' real estate footprint to cut costs. The home office regime adopted by the company during the pandemic taught the company that 50% of office workers could effectively work from home permanently, Chief Executive Roberto Castello Branco said.

Brazil-listed preferred shares in Petrobras were up 1% in afternoon, trade after the company posted margins that beat expectations on Thursday night, even as it took a $11 billion impairment on its exploration and production assets.

Brazil's benchmark Bovespa equities index was down 1%.