The coronavirus is spreading like wildfire in Brazil, and the country’s oil industry could get caught up in it. “Brazil has the worst COVID growth rate of any G20 country: the pandemic is completely out of control,” wrote Raymond James in a report, explaining why he downgraded his recommendation for Petrobras to Market Underperform.
Brazil has just overtaken the United Kingdom to become the country with the third highest number of COVID-19 cases, with more than 270,000. Only the United States and Russia have more. Worse still, the death rate is rising rapidly.
The government of President Jair Bolsonaro has vigorously opposed foreclosure measures and even recommendations for social distancing. Brazil is the only large Latin American country that does not have a national foreclosure. Bolsonaro downplayed the importance of the coronavirus, call it’s a “little flu”.
Mass fallen down tell a different story. But when he was asked about the growing number of deaths, he said, “So what? I’m sorry. What do you want me to do?”
Each night panelaço protests, in which people bang pots and pans on their balcony windows, became a staple in Sao Paulo even before the recent COVID-19 explosion. The protests, which included chants of “Bolsonaro out!” highlight the growing political danger for the president.
Bolsonaro’s Prime Minister of Health, Luiz Henrique Mandetta, was very popular. But after contradicting the president’s message on COVID-19, he was fired. His successor lasted only a few weeks. “The Ministry of Health is a ship that has lost its way”, Mandetta said Monday.
Related: Natural Gas Drillers Face Price Merger As Storage Fills Up Quickly
About 18,000 people have already died of the virus in Brazil and the number of cases continues to increase rapidly. The absence of generalized tests suggests that the actual number is even higher. Wall Street newspaper published a heartbreaking tale of Brazilian nurses on the front line. Suffering from a lack of equipment and a lack of higher level leadership, nurses are dying at an alarming rate.
In this chaotic context, it is perhaps not surprising that Brazil is the country with one of the highest R numbers. The R number refers to the breeding number, or the number of people that a given infected person transmits to the virus to others. If the number R is less than 1, the difference slows down. Brazil was over 2 years old, according to a May 9 article in The Lancet.
Indignation at the president is on the rise. Bolsonaro is now shaken by overlapping political, economic and health crises. To further complicate matters, the Minister of Justice, Sergio Moro, who chaired Lava Jato investigations a few years ago, resigned in late April and accused President Bolsonaro of trying to fire the national police chief to interfere with the investigations. The fight with Moro alone could sink Bolsonaro.
Related: World’s Most Controversial Oil Frontier Disgraces With Big Banks
“We see no way to avoid a national foreclosure, and for a long time,” said Raymond James in a note. The investment bank said Brazil’s response to COVID-19 “stands out globally for its extreme dysfunction” and that the data is “incredibly bad”.
The country’s oil industry, and in particular Petrobras, will be hit hard. Petrobras was directly affected by the coronavirus, with more than 261 workers in the infected company, end of April. In mid-May, the company had to remove workers from an offshore platform because the workers had been infected.
At first, Brazilian regulators suspended all oil and gas tenders planned for this year. Petrobras also sought to reduce production, but reversed Classes on higher demand in China.
But Brazil cannot simply ignore the coronavirus and simply continue as usual, as Bolsonaro prefers. With the death toll rising at a frightening rate, the political backlash is mounting. Closures seem inevitable, says Raymond James, which “not only would exacerbate pressure on the downstream segment of Petrobras, but would also worsen macroeconomic conditions, with ramifications for money and the sovereign credit rating, to which Petrobras is exposed” .
By Nick Cunningham for Oilprice.com
More readings from Oilprice.com: