Brazil oil strike risks Carnival fuel supply

Rio de Janeiro, 13 February (Argus) — A nearly two-week strike by Brazilian oil workers could spark fuel shortages next week, just as Carnival season kicks off, labor federation FUP says.

The FUP represents some 20,000 oil workers that launched the indefinite strike on 1 February in a bid to reverse state-controlled Petrobras' decision to suspend a fertilizer plant and to keep the company from divesting key assets.

FUP blamed Petrobras for any potential fuel supply disruptions.

Petrobras says the strike is politically motivated and runs afoul of a 2019 collective bargaining agreement.

The company has said that crude and fuel production remains stable thanks to emergency hires. "The company is also hiring companies with experience in the operation and maintenance of offshore oil and gas production facilities, to supply specialized and certified labor to operate on their own platforms for the duration of the strike movement," Petrobras said.

But government doubts have started to surface as the strike drags on.

"Although Petrobras … has temporarily allocated contingency teams for operational units to ensure operation and safety, the situation is extraordinary," Decio Oddone, director general of Brazilian oil regulator ANP said in a 11 February regional labor court filing. He warned that "such a solution will not be sustained over time, and may cause direct impacts on the production of oil products due to processing reductions or even the total halt of refineries."

Oddone added that a prolonged strike could also dent tax revenues, which are levied at the state and federal levels.

The FUP says that workers at 53 oil platforms, including some at pre-salt fields in the Santos basin, and 11 refineries, among other units, are participating in the strike.

The strike-related risk to fuel supply is compounded by concerns that Petrobras' recent spate of fuel price cuts is driving away importers, leaving the country more vulnerable to shortages.

Fuel-importing consortium Abicom points to a weakened local currency and four Petrobras wholesale price reductions between 14 January and 6 February.

Fuel imports in Brazil averaged around 590,000 b/d in 2019, a 4.4pc increase over 2018, according to ANP data. The increase was spurred in part by an 11pc jump in diesel imports, which climbed to 221,000 b/d as Petrobras shifted more domestic production units to IMO 2020 compliant marine fuel.

Petrobras has denied importers' claims of pricing that is inconsistent with the import parity principle that guides its oft-amended market-based pricing policy.

When it launched the strike two weeks ago, the FUP cited "abusive" fuel prices as another of its grievances.

Brazil's independent truck drivers have threatened a repeat of a May 2018 strike over fuel prices that only ended after the government imposed a temporary diesel price subsidy.

By Nathan Walters