Brazilian liquids output ex-biofuels fell m/m by 64 thousand b/d in July to 2.73 mb/d, as maintenance at the Parque das Baleias complex weighed. As a result, Campos basin production fell to a record low of 1.29 mb/d, lower y/y by 0.21 mb/d (16%). Meanwhile, pre-salt production rose y/y by 0.23 mb/d which together with small contributions from minor basins left total Brazilian output higher y/y by only 39 thousand b/d. The pre-salt produced 1.29 mb/d from 80 wells in July and contributed just under 50% of total Brazilian output. We expect pre-salt production to surpass post-salt output by Q4 17. So, the API of Brazilian crude will continue to move higher (i.e. get lighter), with heavy production averaging less than 0.5 mb/d for the past six months (17% of output) compared to 2016 (26%) and 2015 (33%). We expect Brazilian production to register modest growth across the rest of H2 17 as delays to new projects result in only 8% of 2017’s expected 0.45 mb/d peak capacity coming online this year.
Brazilian oil demand rose y/y for the third consecutive month in July, up by 34 thousand b/d y/y to 2.35 mb/d, with each of the four main products seeing growth for the first time since January 2015. Gasoline demand rose again y/y, though growth slowed to 53 thousand b/d, whilst fuel oil demand rose by 6 thousand b/d y/y as low water levels reduced hydroelectric power generation. However, gasoline growth may continue to slow as increases in the PIS/Cofins social tax on fuels and Hurricane Harvey’s impact on global gasoline prices increase the competitiveness of ethanol for drivers of flex-fuel vehicles. Refinery runs fell to their lowest level in 2017, down by a further 23 thousand b/d m/m to 1.69 mb/d, although growth in product imports slowed following Petrobras' decision to review gasoline and diesel prices more frequently.