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Brazilian total liquids output ended H1 19 on a weak note, falling y/y by 53 thousand b/d to 2.65 mb/d in June. Crude output fell by 0.17 mb/d m/m to 2.56 mb/d (-33 thousand b/d y/y), as a result of heavy maintenance at Lula (-0.11 mb/d m/m), while post-salt output fell by 13% y/y as declines accelerated. Disappointing output in H1 19 (flat y/y) has led Petrobras to trim its full-year 2019 growth forecast by 0.2 mb/d to 70 thousand b/d. We expect supply to ramp up in H2 19 (+0.3 mb/d y/y) as the P-74 system at Buzios hit 0.16 mb/d, exceeding its 0.15 mb/d capacity following the resolution of gas plant commissioning issues that had capped output. Elsewhere, guidance from Galp indicates that the P-67 and P-69 systems in the Lula field are also ramping up. Brazil’s crude exports rose y/y by 0.2 mb/d to 0.88 mb/d in June but fell m/m as Petrobras rebuilt inventories domestically following elevated exports across Q1 19. Exports to the US fell by 0.15 mb/d m/m as refiners substituted more competitive WAF barrels for Brazilian grades.
Brazilian oil demand fell by 0.12 mb/d y/y to 2.33 mb/d in June led by diesel (-75 thousand b/d), though the latter’s baseline is distorted by the truckers’ strike last year. However, diesel demand was flat m/m as the Copa America football tournament held in Brazil from 14 June to 7 July likely supported some commercial activity. Gasoline demand fell y/y by 41 thousand b/d in June as domestic prices for ethanol remained competitive (37% lower than gasoline). Ethanol demand rose y/y in June by 49 thousand b/d, albeit the lowest growth in 20 months. Refinery runs fell y/y by 0.11 mb/d to 1.72 mb/d amid weak demand. Total products imports fell by 60 thousand b/d to their lowest since May 2018 led by naphtha (-74 thousand b/d). We expect refinery runs to fall in Q3 19 due to planned refinery outages.