If prices remain low, country will earn less from top export while Petrobras gets room to lower fuel prices
04/07/2025
The decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to increase oil production starting in May by a larger-than-expected volume has surprised the market, worrying oil companies and adding further uncertainty to an already challenging global short- and medium-term outlook.
The cartel’s announcement came on April 3, a day after President Donald Trump’s announcement of broad tariffs on the rest of the world. Analysts and industry executives believe the combination of these two factors has heightened uncertainties. The American trade tariffs are expected to slow down the global economy, which could reduce growth in countries and decrease demand for oil. Yet, despite this already complex scenario, OPEC+ opted to triple the volume of additional supply compared to the previous plan for 2024, causing oil prices to plummet.
On Friday (4), global benchmark Brent crude closed at $64.95 per barrel, a drop of 6.44% from the previous day and 10.73% for the week.
A scenario with lower Brent prices could help Petrobras in reducing diesel and gasoline prices in the domestic market. On April 1st, the company cut diesel prices by R$0.17 per liter, a decrease of 4.6%. It was the first time the oil company reduced fuel prices since December 2023. Gasoline, which saw an increase in July 2024, remains unchanged.
However, if the Brent price reduction persists in the long run, Brazil is likely to earn less from oil exports. In 2024, oil was Brazil’s main export item, surpassing soybeans, with sales of $44.9 billion, a 5.23% increase over 2023.
Daniel Osorio, head of energy for Hedgepoint in the U.S. and Latin America, states that Brazil is in a difficult position: “The increase in production by OPEC members could make it more challenging for Petrobras and other Brazilian players to compete in Europe and Asia.”
On Thursday, OPEC+, which accounts for about 40% of global oil production, decided to raise the commodity’s supply by 411,000 barrels per day starting next month. This volume equates to three months of the supply ramp-up plan announced in December. At that time, the idea was to add 140,000 barrels per day to the cartel’s production from April 2025, including May and June. Until then, it could be said that this week’s supply announcement was anticipated since the end of last year. But what surprised many was the addition of a significantly larger number of barrels all at once.
Given the circumstances, Goldman Sachs revised its oil price estimate to $66 per barrel by the end of 2025, a reduction of $5 per barrel from the previous forecast. According to the bank, in addition to the cartel’s decision, the tariffs announced by Donald Trump also increase the risk, which is expected to bring more volatility through the end of the year.
Mr. Osorio from Hedgepoint says that the OPEC+ announcement is related to the group’s internal policies. “Although the timing might seem strange, it’s important to consider that Russia has been expressing concerns about Kazakhstan’s production growth for some time, especially after the expansion of the massive Tengiz oil field operated by Chevron. The decision reflects ongoing regional tensions rather than a direct response to Trump’s tariffs,” he states.
The Hedgepoint analyst evaluates that while it was expected for OPEC+ to resume production levels in 2025, this decision combined with Mr. Trump’s tariffs could have uncertain effects: “What is certain is that many countries will be forced to negotiate with the United States. Companies are already seeking ways to mitigate the effects of these new tariffs.” The drop in oil prices, he adds, could lead oil producers to reduce supply levels in more expensive fields, prompting oil companies to reevaluate investment plans.
Citi describes the combination of American tariffs and OPEC’s decision as a “double whammy” for the oil and gas sector, increasing risks to global economic growth and demand for the commodity. In a report, the bank states that OPEC’s choice to triple the production increase compared to previous expectations accelerated the oil price decline: “The group of producers’ policy change appears to stem from a period of tensions over certain members exceeding production limits.”
Felipe Perez, an analyst at S&P, says that despite the uncertainties brought by OPEC there is a notion that Trump’s tariffs are short-lived and negotiating tools that might be used in discussions with Saudi Arabia, an OPEC+ member: “OPEC faces challenges in bringing consensus among members. If the price drop trend continues, the American producer will consider production plans and counter with the American campaign for more drilling, ‘drill, baby, drill.’” For Mr. Perez, a lower price could help OPEC+ rein in some members who, due to high foreign private capital in production, were exceeding quotas.
*By Kariny Leal, Valor — Rio de Janeiro
Source: Valor International