After dominating Latin America's oil production for decades, Venezuela and Mexico are fading fast as Brazil steps up with massive investments and rising output.

If Brazil keeps up the pace, it will help compensate for waning output elsewhere in a region that pumps about 10% of the world's oil and strengthen the country's economic and political clout. When global oil demand picks up again, Brazil will be well positioned to take advantage of rising prices thanks to a larger export base.

Mexico led Latin American oil production in December with 2.72 million barrels a day, followed by Venezuela, with an estimated 2.35 million barrels a day. Brazil trailed with 1.88 million barrels a day, but the wind blows at its back while Venezuela and Mexico are slipping.

State-run energy company Petroleo Brasileiro SA, which accounts for nearly all of Brazil's crude-oil output, expects several new fields to lift production this year to 2.05 million barrels a day. Output at the company, known as Petrobras, has jumped 46% since 2000.

The International Energy Agency expects Mexico's oil production to drop at least 7% this year, after a 9% decline in 2008, because productivity of its main Cantarell oil field continues to plummet. Cantarell has dragged total Mexican output down by a fifth since 2004.

Insufficient investment, labor unrest and steep natural decline rates have pushed Venezuelan production down by more than 700,000 barrels a day over the past decade. This year, state-run Petroleos de Venezuela SA, known as PdVSA, faces a cash crunch as well as increased production cuts as a member of the Organization of Petroleum Exporting Countries, or OPEC.

The lure of becoming an oil power has Petrobras looking long term. The 2008 oil-price crash forced major oil companies such as ConocoPhillips Co. and Norway's StatoilHydro ASA to slash capital spending. Petrobras recently announced a 55% increase in its five-year investment plan to $174.4 billion. The company plans to become one of the world's five largest producers, Petrobras Chief Executive Jose Sergio Gabrielli has said.

Goldman Sachs analysts said in a recent report, 'We believe Petrobras's bold, contrarian new business plan might well make it the best positioned major oil company globally for the next oil price upcycle.'

Brazil plans to more than double oil production by 2020, with over one-third coming from recently discovered, ultradeep offshore 'subsalt' fields. Petrobras plans to refine the new production domestically to export fuel instead of crude, thereby maximizing export revenues.

'The potential is there for Brazil to become a significant exporter,' said David Fyfe, a supply analyst at the Paris-based IEA. 'The question is more do we see them as a crude exporter or a products exporter.' He said that Petrobras needs to find financing during a period of turmoil in international capital markets to stick with its investment program.

Goldman Sachs said Petrobras has outperformed most of its peers in production growth even though the company has fallen short of its own targets. The bank expects the company's annual production to grow by a percentage in the mid-single digits for years to come.

Peter Millard / Jeff Fick