Brazil's oil sector has so far transcended a brewing political crisis in Brasilia, where Jair Bolsonaro is facing a flurry of allegations that threaten his presidency less than two years into his four-year term.
Brazil's state-controlled Petrobras, which accounts for three-quarters of the non-Opec's country's production, is bucking an industry trend of retrenchment with record crude exports of 1mn b/d in April, surpassing its 771,000 b/d record from December 2019. The company is currently pumping around 2.26mn b/d of domestic oil, down only around 2.5pc compared with the first quarter average. A planned 200,000 b/d production cut was partially rolled back late last month.
Petrobras is getting a lift from demand for low-sulfur marine fuel and a post-pandemic economic recovery in China, which took around 60pc of Brazil's crude exports last month, down from 2019 share of roughly 70pc but complemented by new EU markets.
Foreign companies operating in Brazil, such as Shell and France's Total, are also working to maintain pre-pandemic production levels.
Among other foreign operators, Norway's Equinor still has not defined a timeline to restart its 60,000 b/d Peregrino field following a production halt in late mid-April because of a turbine issue.
Even with stable output, lower oil prices are wreaking havoc on local coffers. Brazil's lower house of congress this week approved a "war budget" to help states and municipalities offset lost revenue from oil taxes and royalties.
Leading the rescue package is influential lower house president Rodrigo Maia, the target of Bolsonaro's scorn for months and the bete noire of pro-market economy minister Paulo Guedes.
Guedes has been seeking to accelerate energy sector reforms, such as state asset sales and a revised contract model for pre-salt assets, as a way to alleviate the economic pain caused by the pandemic.
But any momentum for such reforms faces political headwinds following the acrimonious 24 April departure of justice minister Sergio Moro. According to a leaked summary of Moro's 3 May deposition, part of a federal police investigation, Bolsonaro attempted to meddle in federal police affairs, particularly in his home state of Rio where his politician sons face criminal probes.
Early this week, Brazil's high court authorized cabinet interrogations and gave Bolsonaro 72 hours to deliver digital files of a meeting in which Moro says he was threatened with removal.
Bolsonaro has denied the claims and defended his choice to replace the head of the federal police whose departure prompted Moro's resignation.
For now, the return to traditional political horse-trading that Bolsonaro decried during his insurgent 2018 presidential campaign appears to have secured enough support in the factious congress to stave off impeachment proceedings.
Guedes' permanence has calmed investors, who remain interested in Petrobras' $20bn-$30bn five-year divestment plan, according to chief executive Roberto Castello Branco. But while upstream and midstream asset sales plan remain on track, refinery sales have been temporarily suspended.
Brazil still plans to hold a pre-salt licensing round in June 2021. Market conditions are likely to lead the government to significantly sweeten the terms, especially after disappointing results in two high-profile auctions in November 2019.
