The leading oil workers' union, National Oil Workers Federation, said it was also unhappy about the proposed profit-sharing agreement offered by Petrobras following a record-breaking year of profits in 2008, when oil prices reached all-time highs.

Petrobras reportedly netted more than $14 billion in 2008, a nearly 60-percent increase from the previous year, thanks mostly to oil prices reaching as high as $147 a barrel.

Meanwhile, during the same period, 165 oil laborers were killed in work-related accidents, union officials said.

An estimated 60,000 of 74,000 workers at Brazil's state-run energy company Petrobras declared a work stoppage over their demands, noting that if negotiations with management that started Tuesday did not produce an acceptable agreement, the strike could carry over into the weekend.

So far, Petrobras officials said production has not been affected by the massive strike. Brazil produces an estimated 2.3 million barrels per day.

"Petrobras ... took all necessary measures to ensure operational continuity and the supply of its customers and of the general population. There is no risk of a shortage," Petrobras announced Tuesday in a statement on its Web site.

However, were the strike to extend beyond the fifth day planned by union officials, Petrobras Chief Executive Officer Jose Sergio Gabrielli said the energy giant would "reassess the situation," though he gave no indication whether Petrobras would concede to workers' demands.

The National Oil Workers Federation denounced the claim by Petrobras, saying that the stoppage has already hampered production at both onshore and offshore oil facilities.

Though Petrobras insisted its production has so far been unaffected by the strike, a much smaller-scale work stoppage last year caused the company to lose 60,000 bpd.

The strike comes at a critical time for the Brazilian oil sector, which is keen on developing new offshore oil blocks, one of which could hold up to 8 billion barrels of oil by Petrobras estimates. Total offshore oil reserves are believed to hold up to 70 billion barrels.

Development of the blocks would catapult Brazil into the world's Top 10 oil exporters, Brazilian President Luiz Inacio Lula da Silva said after the discovery of the Tupi oil field in 2007.

Lula earlier this year said the first real production from the deepwater wells would begin in May, a promise that would be difficult to keep were the industry hampered by a prolonged labor dispute.

The industry is also facing a political crisis of sorts because of lawmakers' failure to pass new oil legislation, which is necessary to begin full-scale production at the offshore fields.

The Brazilian leader said last week that he expected the new legislation to be on his desk in the coming days. So far, there is no indication Lula is ready to present the proposed law to the Brazilian Congress, which must ratify it.

The law is aimed at determining how the projected windfall from the oil profits would be spent and has prompted much debate in recent months. Lula said the money must not be spent on "silly things," a direct reference to the recent frenzy of discussion among lawmakers in Brasilia on how to spend the nation's future oil fortunes. Among the recently proposed expenditures is a fleet of nuclear submarines.

The law's passage could prove to be a defining moment in the president's eight-year career, which is scheduled to end in 2010.

"Lula does not want to leave the decision to the next administration, and politically he is looking to plant a 'flag' on the new deepwater discoveries," a recent analysis of the sector by the Eurasia Consulting Group said.

Lula, a longtime champion of the left whose monetary policy has been somewhat conservative during his first six years in office, said the country's oil profits should be spent revamping Brazil's educational system, particularly for the country's vast poor populace.

A former union leader, Lula said earlier this year that Brazil's recent oil fortunes would help wipe out endemic poverty once and for all -- a bold claim considering the South American country has one of the world's largest economic divides been the haves and have-nots.

That hope could become a moot point were the strike to continue and production levels to fall noticeably, which would further hamper lawmakers' ability to decide how to handle its newfound, albeit still not in hand, fortunes.

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