Rising South American production reshapes global supply (written for Wiley, July 26)
Rising South American output is helping offset reduced crude flow from the Middle East. The increases come thanks to the strong performance of Brazil’s Petrobras, and more recently, Argentina’s YPF, combined with investment from international oil companies attracted by a variety of low-cost, large-scale reserves in countries with supportive policies and maturing infrastructure and services. Consumers welcome the new supply, seeing it as more secure than Mideast barrels – which could help support grade differentials, investment, and long-term demand.
South America has become the world’s fastest-growing region for crude oil production and exports. This new non-OPEC+ source of supply is altering trade flows and shaking up global crude markets, with significant implications for OPEC+ and other producers, as well as global refiners and consumers. Increases this year have been particularly welcomed by refiners struggling to secure regular supplies from the Mideast Gulf, while South American producers have been encouraged by the strong demand, higher prices and premiums.
The region is benefiting from several independent growth engines. Established producer Brazil is continuing to expand its deepwater pre-salt fields into one of the world’s leading offshore provinces, while further north along the coast, Guyana has developed its offshore rapidly with the help of Exxon and other international oil majors. Meanwhile, Argentina is transforming the Vaca Muerta into one of the world’s leading shale provinces, and Venezuela is once again emerging as an important supplier of heavy crude in the wake of January’s US intervention and subsequent sanctions relief. Ecuador (a previous OPEC member), and Colombia, are also adding capacity.
The new production is reshaping global crude trade this year, with record exports helping replace disrupted Middle Eastern supplies. Asian refiners have been particularly keen to buy from the Americas, with South Korea importing 11.6mn barrels from Brazil and 5.07mn bl from Canada in the first five months of the year, according to Platts – up sharply on 2025. South Korea aims to raise its Canadian crude imports to 16mn barrels for the full year.1
The shift is also becoming embedded in longer-term trading relationships. At the end of January, Petrobras renewed and significantly expanded term crude supply agreements with Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum. The contracts run until March 2027 and represent potential sales of up to 60mn bl, worth more than $3.1bn.2 Indian refiners have also significantly increased imports of Venezuelan crude following the easing of sanctions, with flow climbing to 13.5mn bl in May.
These changing trade patterns underline the growing importance of South American producers within Asian procurement strategies. Volumes could continue to rise, although June saw a significant fall in both US and Venezuelan exports as flows through Hormuz increased temporarily. However, where refiners have invested time and resources in adapting to new crude grades and optimising refinery operations, longer term flows are expected.
For OPEC+, the rapid expansion of South American production presents a strategic challenge. Over the longer term, these additional barrels will remain in the market even after Gulf exports recover, reducing dependence on the Middle East, widening the range of crude grades available to refiners and weakening OPEC’s market power. The result is likely to be an increasingly competitive supply environment where any production restraint by OPEC+ is less able to control prices and more likely to result in loss of market share (depending on demand growth).
Brazilian offshore growth continues
Successive production records during the first half of 2026 have reinforced Brazil’s position as Latin America’s largest oil producer. Total Brazilian crude production reached a record 4.34mn b/d in April before easing by 0.9% to 4.301mn b/d in May, partly reflecting planned maintenance at the Tupi and Jubarte fields. April output was 19.5% higher than a year earlier, while May production remained 16.9% above May 2025.3
The main source of new production continues to be Brazil’s offshore deep pre-salt basins. Over the past decade the industry has steadily refined a development model based around standardised Floating Production, Storage and Offloading (FPSO) vessel designs, repeat drilling programmes and continuous improvements in operating efficiency. The result has been a significant reduction in development costs while maintaining exceptionally high well productivity. This, combined with large scale reserves, a maturing local services industry and consistent and supportive government policy, has made it attractive to international oil companies.
Most investment is through production-sharing contracts in partnership with state-Petrobras, and these continue to add new FPSO vessels and ramp up existing facilities. In early May, Petrobras and its partners brought the P-79 FPSO onstream at the giant Búzios field several months ahead of schedule, adding an installed capacity of 180,000 b/d of oil and 7.2mn m3/d of gas, according to official data reported in Platts. The earlier commissioning of the P-78 FPSO has also continued to support higher output, with total Buzios output averaging 893,370 b/d in May and hitting a daily production record of 1.2 mn b/d in late June, according to ANP data reported in Platts – making it the biggest conventional oilfield in the Western Hemisphere, with nearby Tupi a close second.
Independent Brazilian producers are also beginning to make a more significant contribution. The country’s biggest independent, Prio, hit record production of 178,067 boe/d in June after connecting the fourth production well at its offshore Wahoo field.4 Prio plans to cap the Wahoo field’s output at 40,000 b/d despite strong well performance, according to Platts.
Looking ahead, Brazilian output is expected to keep rising. Petrobras plans to commission a further series of FPSOs through 2027, ensuring that production growth continues, while government-owned Pré-Sal Petróleo (PPSA) is expected to keep increasing the volume of state crude sold through auction to international buyers.
There are, however, emerging challenges. As Brazilian exports continue to increase, refiners are paying closer attention to crude quality. Some Asian buyers, particularly in China, have expressed concerns over the relatively high nitrogen content of certain Brazilian grades, requiring greater refinery processing and increasing maintenance requirements.5 These issues have weakened prices for some Brazilian grades during recent months.
Nevertheless, Brazil remains one of the few countries capable of delivering sustained, large-scale production growth from conventional resources, helped by a combination of stable and supportive above ground conditions, as well as resource scale, and relatively low production costs.
Argentina shale production accelerates
Argentina has rapidly become a leading shale oil and gas producer, driven almost entirely by the Vaca Muerta formation in the country’s Neuquén province. Argentina’s oil production hit a record 903,700 b/d in May, up 19.6% y-o-y, continuing its steady growth trajectory, according to official data reported in La Nation.6 Production from Vaca Muerta’s Neuquén province climbed to a new all-time high of 636,295 b/d, or 69% of total production, reinforcing the shale play’s role as the country’s principal source of production growth.
The rising output is being underpinned by continuing improvement in drilling productivity. State-controlled YPF and other operators are quickly learning from shale drilling experience in the Vaca Muerta, enabling longer horizontal wells, with increased fracture intensity and reduced drilling times – allowing quicker and lower cost per barrel production.
The upstream activity is being supported by new pipelines and processing facilities, including the Vaca Muerta Oil Sur pipeline and associated export terminal, which is key to reducing constraints on production. The line’s initial stage is due for completion by the end of this year with a flow rate of 190,000 b/d, and expansions beyond that.
President Javier Milei’s government has also been lowering taxes for oil producers and improving drilling incentives, helping to attract overseas capital. Specifically, Milei’s Incentive Regime for Large Investments (Rigi) is helping provide long term fiscal stability for investments of at least $200 million, as well as removing restrictions and taxes on exports and certain imports while offering exemptions to currency exchange controls – a key factor for oil exporters. Four oil and gas projects had been approved under Rigi by mid-July, with many more under evaluation.
Investors include major US shale producer, Chevron, which is pumping $13.8bn into the Vaca Muerta, and is targeting a tripling of its Argentina production to 180,000 boe/d. BP (through its 50% stake in local independent Pan American Energy) and Shell are also both present. YPF remains the Vaca Muerta’s biggest producer with 256,000 b/d and has proposed a $25bn program to develop its shale assets over 15 years.
YPF and the government see total Argentine production surpassing 1mn b/d by the end of this year, and official targets for 2030 range from 1.4-1.7mn b/d, with continued growth likely beyond that until at least the mid-2030s. Most of this is likely to be exported; and given that Vaca Muerta crude is of similar quality to US shale oil, it could become a future competitor for US exporters.
Venezuela returns to the market
Venezuela’s oil sector is showing signs of recovery following the US intervention of early 2026, along with the introduction of a new hydrocarbons law and the subsequent easing of US sanctions. Production has risen steadily throughout the first half of the year as drilling activity has expanded. Output has climbed from 940,000 b/d at the start of the year to 1.155mn b/d in May, and 1.19mn b/d in June.7
The government has been working on reforms to the oil and gas sector that should make it more attractive to investors, including around production taxes and state-owned PDVSA’s role. In January, the new Rodriguez-led government passed a landmark new Hydrocarbon Law, which has been heavily amended since.8 One key reform is the apparent removal of PDVSA’s monopoly powers across the energy sector, with more flexibility for private investors, and formalizing private control over key oil-producing assets.
Joint ventures operated alongside international companies account for much of the increased output, particularly within the prolific Orinoco Belt. Chevron has been a major driver, ramping up production at its Petroindependencia (49% Chevron) and Petropiar (30% Chevron) joint ventures, with the latter reaching 106,600 b/d in April, according to Platts.
Asian and European partnerships are also making significant contributions, as per Platts reports, with Petrolera Sinovensa (40% China CNPC) recently increasing its output to 91,200 b/d, while Petromonagas (40% Russia-Roszarubezhneft) recovered to 88,100 b/d. In addition, France’s Maurel & Prom is preparing a new drilling campaign to increase light and heavy oil output from its Petroregional del Lago block, while Repsol is producing about 46,000 b/d across its assets and recently signed a deal to expand its Petroquiriquire joint venture. However, analysts warn that oil-linked debt with China could complicate any restructuring.9
Government targets envisage production reaching around 1.37mn b/d by the end of 2026, up 430,000 b/d from 940,000 b/d in January, although the pace of growth will ultimately depend upon continued political stability, infrastructure rehabilitation and the oil price. Given the resource potential, sensible policies and a high oil price could see output rise further in the medium term, helped by newly signed production agreements and deals like the cross-border developments at the offshore Dragon, Loran and Cocuina-Manakin fields.
Trade flows from Venezuela have also changed dramatically. Prior to the lifting of sanctions, China was the principal destination for heavily discounted Venezuelan crude. Since then, exports have increasingly been redirected towards the US and India, where refiners have been seeking additional heavy crude following the disruption to West Asian supplies.
Nevertheless, challenges remain considerable. Some political/legal uncertainty remains, and years of underinvestment have left much of Venezuela’s upstream and midstream infrastructure in poor condition. Production growth will require sustained investment in gathering systems, pipelines, upgrading facilities and export terminals – industry estimates suggest reaching a modest 1.5mn b/d by late 2027 will require $5-7bn.
Guyana and Ecuador
Guyana continues to ramp up production, with levels reaching over 900,000 b/d only ten years after first oil. Output is expected to exceed 1mn b/d before the end of the year as additional FPSOs enter service. ExxonMobil and partners have had enormous exploration success, especially at the Stabroek Block, and assets have been brought onstream quickly. Chevron’s takeover of Hess means both US supermajors are now major investors in the country’s deepwater.
Guyana’s economics are impressive, with its offshore developments among the world’s lowest-cost conventional oil projects. This, alongside developing infrastructure and attractive fiscal terms, is continuing to support further investment. The country’s small population and anticipated large inflow of investment and wealth mean Guyana has shown no inclination to join OPEC+.
Elsewhere, ex-OPEC member, Ecuador, has seen more modest gains this year despite on-going operational challenges and natural field decline, increasing output to 459,169 b/d by 7 July 2026. This was up about 4.6% on the 2025 average of 439,100 b/d, when production was heavily disrupted after the operation of key jungle pipelines was suspended.10 However, the latest output number remains below the 475,272 b/d averaged in 2024. Ongoing drilling programmes and planned investment are expected to support a continued slow recovery during the second half of the year.
State-run Petroecuador accounts for the majority of Ecuador’s output, with levels reaching 370,197 boe/d through mid-June, up from 366,064 boe/d a month earlier. Most incremental barrels are coming from the country’s eastern Oriente Basin near the Peruvian border.
References
1. https://energynow.ca/2026/06/south-korea-seeks-to-boost-crude-oil-and-lng-imports-from-canada/
2. https://agencia.petrobras.com.br/en/w/petrobras-amplia-venda-de-petr%C3%B3leo-para-a-%C3%ADndia
4. https://analisa.genialinvestimentos.com.br/acoes/petrorio/prio-prio3-dados-de-producao-junho-26/
5. https://www.spglobal.com/energy/en/news-research/latest-news/shipping/070826-chinas-weak-demand-for-brazilian-crude-drags-down-delivered-cargo-prices
6. https://www.lanacion.com.ar/economia/de-la-mano-de-vaca-muerta-la-argentina-marco-un-nuevo-hito-en-la-produccion-de-petroleo-nid30062026/
8. https://www.energyintel.com/0000019c-0bbe-d184-a3fc-8fbe33c70000
9. https://www.spglobal.com/energy/en/news-research/latest-news/crude-oil/061226-venezuelas-oil-linked-debt-with-china-could-complicate-its-restructuring-push
10. https://www.argusmedia.com/en/news-and-insights/latest-market-news/2734764-ecuador-s-crude-output-to-fall-by-7pc-in-2025