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On a hilly, scorched plot of farmland in Brazil’s destitute northeast, there’s a replica of the mud-and-stick-walled hut where Luiz Inácio Lula da Silva, who went on to serve two terms as president, was born. It’s in places like this, where emaciated cattle graze on sunbaked scrub, that Lula and his handpicked successor, Dilma Rousseff, are mustering their forces to fight Rousseff’s impeachment and defuse multiple corruption scandals.
Lula, perhaps Brazil’s most popular leader ever, spent his first seven years in the hut with his mother and six siblings. There was no electricity or running water, no proper bathroom or shoes. In 1952, the family piled onto a truck for a one-way, 13-day journey to São Paulo. Millions made this exodus south in the 20th century as government after government failed to provide enough relief from drought and hunger. Lula sold peanuts on the street, worked in factories, was jailed by dictators for leading a union, and founded the now ruling Workers’ Party.
In 2002, Lula won the presidency by a landslide. He expanded welfare, credit, crop support, and housing programs for subsistence farmers and slum dwellers, as well as universities, health care, and jobs programs for their children, all on a scale never seen before. This safety net, largely maintained by Rousseff, pulled 36 million
people out of abject poverty, especially in the northeast.
These poorest Brazilians gave Rousseff her narrow reelection in 2014. Today, along with unionized workers and civil servants, they are a largely loyal force that Lula and Rousseff hope will help them block efforts to oust her and keep him from running for president in 2018.
In early April, Lula will visit the northeast to tell supporters that efforts to implicate him in corruption scandals and impeach Rousseff are a coup attempt. The Workers’ Party is going door to door to urge Brazilians to pressure their congressmen by taking to the streets in support of the government. “This is their base, and they’re trying to rally them. And it may help,” says Brasilio Sallum Jr., a University of São Paulo sociology professor who published a book in 2015 on the last president to be impeached in Brazil, Fernando Collor de Mello. “But it steps up the level of social conflict, which is very worrisome.” People wearing red, the Workers’ Party color, have been jeered on the streets, lawmakers have scuffled in Congress, riot police have tear-gassed protesters, and the former president’s Lula Institute has been vandalized.
The makeup of the demonstrators shows the impeachment battle is being fought along class and racial lines. In São Paulo on March 13, half a millon protesters called for the president to step down; they were 77 percent white, and more than half were considered high-income, a survey by pollster Datafolha found. Brazil is about 47 percent white, with the rest being black or of mixed ancestry. At a progovernment march in São Paulo on March 18, Rousseff drew more black and mixed-race supporters, and almost half were lower middle class or poor, a Datafolha survey shows.
Rousseff may have the poor on her side, but there are signs she’s losing support within the 114 million-strong emerging middle class. Forty-four percent of them are upset that she has scaled back some of the social programs Lula started that got them to where they are, according to a recent survey by the polling firm Data Popular.
If Lula and Rousseff prevail, it will be thanks to Brazilians like Jose Erminio da Silva, whose farm is 15 miles from the former president’s birthplace. “Without Lula, we would have been condemned to hunger, poverty, nothing, like everyone before us,” he says. Since the early 2000s, Da Silva—no relation—has used a government credit program created by Lula to purchase 4.8 hectares of land, build a barn, and acquire about a dozen cattle. He’s one of 3 million subsistence farmers who’ve received such financing. Da Silva says “no president has helped the poor in Brazil like Lula. Those who want to impeach the president just want to take it all away. We can’t allow that to happen.”
For two years, prosecutors have pursued executives and political aides on allegations that bribes paid for contracts at national oil company Petrobras were funneled into political campaigns. The investigation has engulfed both Rousseff’s government and Lula, who was briefly detained four weeks ago for questioning.
In March, Congress started impeachment proceedings against Rousseff for allegedly tapping state bank coffers to mask budget deficits, in violation of the law. Rousseff, who’s denied any wrongdoing, named Lula her chief of staff, entrusted with overseeing political and economic policies. The move could give him immunity from prosecution in a lower court. The Supreme Court is deciding whether to allow the appointment. A major party left Rousseff’s ruling coalition on March 29, and the stock market has surged on hopes that Rousseff will soon be out of office.
According to a March 19 Datafolha poll, about 68 percent of Brazilians want Rousseff replaced. Lula has more support and not just in the northeast. In a nationwide Feb. 25 poll by São Paulo-based Datafolha, 37 percent said he was the best Brazilian president of all time.
In Caetés—whose average rural household income of 77 reais ($21) a month makes it one of Brazil’s poorest spots—the opposition to Rousseff’s ouster runs deep. The family of Maria de Socorro Florentino is one of 13.9 million who received Lula’s cash handouts, which got paid on condition that children be vaccinated and go to school. Florentino says the cash saved them. “I remember running out of food, really running out of food when my kids were little,” she says. “If it weren’t for Lula, and Dilma after him, I’m sure I would have died of hunger. Maybe she wouldn’t have survived,” she says, pointing to her daughter.
The impeachment process might come to a vote by mid-april, but it’s by no means certain, says University of São Paulo’s Sallum. To make it to the senate for a trial, the motion to impeach must pass by a two-thirds majority in the fractious lower house. “That’s incredibly hard to get, which is why Lula and Dilma want to get their base to pressure Congress,” he says. “My big concern is what will happen if she wins? How will she govern?”
Back at the hut, one of Lula’s second cousins, Eraldo Ferreira dos Santos, says the poor have too much to lose not to fight. “Before, you had no choice but to flee, flee, flee the hunger and desperation,” says Santos, whose family migrated to São Paulo in 1969. “Now you have people who have what they need to stay. And that’s a legacy we cannot allow to be taken from us.” �Michael Smith, with Anna Edgerton and Sabrina Valle
Share of Brazilians who say Dilma
Rousseff’s government is “bad or terrible” The bottom line The impoverished northeast region of Brazil remains a bulwark for Lula and Rousseff. It may play a role in their political survival.
brought into the American market.
As of March 25, the four-week average of imports was running at 7.9 million barrels a day, 9.8 percent higher than the year before. “That’s not a one-week blip,” says Tim Evans, an energy analyst at Citi Futures. “We’re seeing a consistent pattern.”
U.S. producers, who reaped the benefits of the shale revolution, no longer enjoy a steep price advantage over foreign rivals in selling to domestic refiners. Production has fallen by about 600,000 barrels a day from its peak of 9.6 million in 2015. Now refineries are buying foreign oil to replace the lost U.S. output—and, along with traders, are storing much of the less-expensive imported oil to sell when prices rise.
During the early years of the U.S. shale boom, the millions of barrels of light, sweet crude had one big problem: no affordable access to refiners on the coasts of Texas and Louisiana. To tap into the cheaper oil pooling in Oklahoma, pipelines that used to bring imported oil up from the Gulf were reversed to take shale oil down to the coast. Refiners in Philadelphia and New Jersey also began buying North Dakota crude instead of foreign oil, moving it by train across the country. By October 2014, U.S. imports had fallen by about 40 percent from a high in 2006.
Analysts say that West Texas Intermediate crude has to be $3 to $5 cheaper than imported oil to pay for those pipeline and transportation costs. From 2011 to 2014, U.S. oil was on average $12.61 cheaper than equivalent foreign oil. The discount slowly narrowed as pipeline projects were completed and U.S. crude began to flow more freely from the middle of the country down to the Gulf Coast. A week before the Senate approved lifting the export ban on Dec. 18, WTI traded around $3 below Brent. Over the next month, the discount disappeared, and, for the first time in six years, WTI traded at a premium to Brent for a few days in January. WTI is now less than a dollar cheaper than foreign barrels available on the Gulf Coast.
So refineries along the coasts are choosing to buy imports instead of WTI. One of the biggest winners is Nigeria, which is regaining lost market share. Imports from Nigeria surged to 559,000 barrels a day in mid-march, compared with an average of 52,000 for all of 2015. Refiners are also taking more heavy oil from Mexico and Venezuela. Not only is it about $9 a barrel cheaper than WTI, it’s also what U.S. refineries prefer to handle.
The irony of the shale boom, and all the light crude it unlocked, is that it came just as U.S. refiners were spending billions to process heavy oil. “In theory, there was always going to be a linkage between freeing up U.S. barrels and replacing them with foreign crude that U.S. refiners are better suited to run,” says Kevin Book, managing director at Clearview Energy Partners.
For some of the weakest U.S. producers with the highest costs, lifting the ban didn’t matter because they can’t compete on the global market, says Abudi Zein, co-founder of Clipperdata, which uses customs data and shiptracking information to estimate global oil flows. For U.S. producers with the highest costs, “they’ll never be able to export because all of a sudden they’re competing with Saudi Arabia and Iraq.”
The U.S. is hoarding a lot of the imported oil. As of March 25, U.S. commercial crude inventories hit 534 million barrels. That’s near the alltime high in 1929, when U.S. commercial storage hit 545 million barrels, as huge oil finds coincided with the beginning of the Great Depression.
Today, with oil so cheap, producers and traders are opting to wait for prices to rise instead of selling, especially with the futures market signaling that oil prices will rise. Traders can lock in those prices by taking out a contract for delivery a few months down the road. A barrel of WTI for delivery in October is about $3.50 higher than the current price of about $39. That premium has dipped in recent months, but it’s still enough to pay for insurance and storage costs—with money left over.
“Putting away oil is one of the few risk-free plays in the world right now,” says Philip Verleger, an energy consultant and former director of the office of energy policy at the Department of the Treasury. Fears of a lack of storage space for oil haven’t come true. As of September 2015, the U.S. had 551 million barrels of working oil-storage capacity, 50 million more than it did two years before, according to government figures. Genscape, an oil-market-surveillance company, estimates that in the Midwest and the area along the Gulf Coast, the pace of construction has increased since September to about 574,000 barrels of new storage—big enough to hold a 747—a week.
The construction has helped keep leasing costs relatively low, says Ernie Barsamian, a principal at The Tank Tiger, a tank-storage broker. Average prices for a one-year lease of a storage tank run about 60¢ to 70¢ per barrel a month, he says. Barsamian estimates