SAO PAULO — Chinese imports of Brazilian oil have increased more than threefold this year, turning Beijing into Brazil’s best customer for crude. Perhaps unsurprisingly, this spectacular upsurge comes as oil giant Petrobras is bolstering its ties to China to secure crucial investment. In the past month alone, the state-owned company received $7 billion in credit from Chinese banks.
Between January and May 2015, Brazil sent 5.4 million tons of oil to the Asian country. That’s 35% of all Brazilian exports during that period, and the biggest purchase made by any country. By comparison, the United States, the biggest importer of Brazilian oil last year, only bought half of what China did in the first five months of 2015.
This sudden boom helped Brazil’s oil sales reach a new record high, 80% more than for the same period last year. But revenues are nonetheless down because the per-barrel price of oil has fallen 40% over the last 12 months.
The trend is also significant because it’s not limited to oil, and it increases Brazil’s reliance on Chinese demand in general. The world’s second-largest economy is now Brazil’s best customer for four of the country’s 10 top export products, after becoming the most important buyer of soybeans, iron ore and cellulose.
The beginning of a beautiful friendship
Trade between Brazil and China began to grow in the last decade but only boomed when prices of basic products rose worldwide. Back in 2000, exports to the Chinese market amounted to little more than $1 billion. Last year, they topped $40 billion, driven by soybeans and ore.
Beijing started taking an interest in Brazilian oil in 2009. That year, while then-President Lula da Silva was visiting, the country freed up $10 billion to invest in Petrobras through the China Development Bank. The loan came together with an agreement to provide oil to China’s Sinopec, which owns refineries across the country, for the next 10 years.
The next year, Chinese companies started to establish themselves in Brazil. Sinopec invested in energy company Repsol’s Brazilian branch while Sinochem — another Chinese state-owned company — acquired 40% of Brazil’s Peregrino offshore oil field from Norway’s Statoil.
China National Offshore Oil Corporation (CNOOC) and CNPC, also controlled by Beijing, followed in their footsteps in 2013 when they participated in a worldwide consortium to explore the Libra oil field, which lies deep in the Atlantic under a thick layer of salt, about 200 kilometers off Rio de Janeiro. Both companies hold 10% in the consortium while the operator Petrobras controls 40%.
This year, amid a massive corruption scandal, Petrobras once again turned to Beijing to ask for money. Two loans for a total of $7 billion were approved to rescue the Brazilian company.
“This suggests that more Brazilian oil will travel to Asia,” says Virendra Chauhan, an analyst for British consultancy company Energy Aspects. “Considering the financing difficulties Petrobras is facing, Brazil has no choice but to turn to China for more loans in exchange for more oil.”
Oil represented a mere 0.5% of all Brazilian exports to China, in terms of value, 15 years ago. That figure now stands at 13%. And counting.