Latin America plays an important role in the global energy market. The region includes countries such as Brazil, Colombia, Guyana, and Venezuela, which are internationally recognized for their importance in this sector.

In the midst of issues such as the rise of renewable energies, geopolitical conflicts, and new socio-environmental regulations, it is essential to understand the Latin American energy market scenario. After all, it is influenced by all these factors, which are responsible for triggering significant changes.

With this in mind, we invited Daniel Osorio, Head of Desk – Energy US/Latam at Hedgepoint, to talk about this subject. Have a good read!

Who are the biggest producers and importers of energy commodities in the region?

With its abundance of resources, Latin America occupies a strategic position in the energy commodities market. In this sense, some countries are leading the way in production.

Among them, Brazil is the leader in the region and ranks 8th as the largest producer of crude oil and condensate, according to the International Energy Agency (IEA). Other important competitors include Guyana, Colombia, Venezuela and Mexico.

Daniel Osorio, Head of Energy Americas

“In some of these countries, the national oil companies are the largest, like Petrobras in Brazil, and they have a considerable influence on revenues. In other words, the social development of these nations is impacted by the sale of hydrocarbons,” adds Daniel Osorio.

Argentina and Ecuador, on the other hand, have a smaller production in the Latin American energy market. In the case of energy commodity imports, Chile and Paraguay are heavily dependent.

How do energy trade dynamics work in Latin America?

According to Hedgepoint’s Head of Desk – Energy US/Latam, Latin America produces mostly raw energy. It therefore exports most of this production:

“Brazil exports to Europe, the United States and other Latin American countries, for example. Colombia, Guyana and Mexico export to the United States,” he says.

However, Osorio points out that most of the world’s oil refineries are in the United States, mainly in Texas. Therefore, after refining, the oil returns from the United States to Latin America in the form of gasoline or diesel.

“In Latin America, although there are refineries, the capacity is often not enough. In some cases, they don’t produce quality fuels and don’t follow all the necessary environmental regulations. So they have to import: in Colombia’s case, gasoline and diesel from the US. Brazil, on the other hand, buys more diesel from the foreign market,” he explains.

Concerning foreign investments, Daniel Osorio says that they are stable in the region, with China standing out, which has been investing heavily for the last 10 years:

“The country is investing by setting up power plants and real estate developments in Latin America. They are betting on the development of raw materials in the energy sector in this region since the Chinese population is a large consumer of energy. Brazil, Venezuela, and Peru are some of the countries that receive Chinese capital for this purpose,” he adds.

How does the price volatility of today’s energy market affect Latin America?

Energy commodities are subject to volatility. In other words, global events affect this market and have repercussions on prices. Currently, the conflict in the Middle East, as well as between Russia and Ukraine, pose risks of affecting players in Latin America:

“The current conflicts continue to drive up prices. The tendency is for the situation to continue, which could benefit oil companies in Latin America. As a result, the economy of these countries gains as a whole,” he says.

Read more:

• Impact of the conflict in Ukraine on the commodities market after 2 years

What are the prospects for the LATAM energy market in the coming years?

According to the IEA, world oil production will increase by 5.8 million barrels a day by 2028. Around 1/4 of this additional supply will come from Latin America. Brazil and Guyana will be the protagonists of this movement:

“Guyana has begun to make oil discoveries on the high seas and open waters. In the last three years, it has strengthened its crude oil production, gaining relevance in the market. Brazil will continue with stable oil production because the Brazilian Government nows that it is fundamental economically and socially,” explains Daniel Osorio.

For this reason, most of the production will come from these two countries. In the case of Argentina, Peru, Ecuador, and Colombia, energy production will be carried out by smaller, independent companies. For Daniel Osorio, Latin America will have to go through a transition:

“Countries need to use all the resources coming from raw materials, such as crude oil, to invest in cleaner energy sources and also in infrastructure,” he explains.

However, he stresses that fossil fuels will remain important in the energy matrix. This is happening in a context of population growth, increased demand, and the generation of wealth for the development of nations:

“The real question is how we are going to produce and consume these commodities. We must increase our safety standards to ensure that we are not affecting the planet more than necessary,” he concludes.

Read also:

 General outlook for agricultural and energy commodities in 2024

Hedgepoint: risk management in the Latin American energy market

The Latin American energy market suffers the consequences of volatility. There are unpredictable events that can affect the entire dynamics of this sector.

In this sense, relying on risk management makes all the difference when it comes to protecting businesses. To this end, Hedgepoint combines hedge products with market intelligence by combining data analysis and sophisticated risk management tools.

We monitor all local and global developments, always assessing the possible impacts on the energy market. With a team of highly trained professionals and a global presence, we turn risks into opportunities.

Talk to a Hedgepoint professional and find out how we can help your business!

This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors.  Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgment and outside advisors before entering any transaction that is introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly results in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878 8408/[email protected] (only for customers in Brazil).