Brazil prepares a new oil auction amid trade war threats to budget, sources claim

Four people with knowledge of the situation said that Brazil is planning to auction off stakes in offshore oil fields this year as a way to increase revenue. The plan has gained momentum amid declining oil prices and increasing global trade uncertainty.

Two sources who spoke under condition of anonymity said that the auction would involve smaller and uncontracted portions of the Tupi, Mero, and Atapu pre-salt fields. They hoped to raise approximately 20 billion reais (US$3.4 billion) as a worst case scenario.

The Brazilian Finance Ministry and Ministry of Mines and Energy have not responded to comments immediately.

The auction's momentum reflects the growing concern about Brazil's fiscal prospects as U.S. Tariffs dampen global economic prospects. Oil prices fell to a 4-year low below $60 per barrel on Wednesday.

Brent crude ended the day at $65.48, almost 20% lower than the average price of $80.79 assumed by Brazil's budget law for 2025.

Brazil benefits from higher oil prices, as they increase revenue from royalties and corporate income tax on oil producers. They also receive hefty dividends by the state-owned oil company Petrobras.

The auction, according to all four sources, was seen as an opportunity to compensate for potential revenue shortfalls caused by factors outside the control of the government.

One source said: "It is important to have escape valves if revenue becomes uncertain due to external shocks."

Another source stated that the government is aiming to have the auction in September. The draft bill is expected to be sent "shortly" to Congress, according this source. This will be followed by a resolution from the National Energy Policy Council as well as the auction notice.

The same source said that Congress will likely support the revenue-raising measures, since it would give a larger margin for congressional earmarks in the middle of the tense budget talks.

Pre-Sal Petroleo, the state-run oil company in Brazil, is planning to auction oil produced under share-contracts from pre-salt fields.

The government of President Luiz inacio Lula da Silveira aims to eliminate the primary budget deficit this year.

The Finance Minister Fernando Haddad stated on Tuesday that the government will take steps to meet the fiscal target if any risks are identified.

(source: Reuters)