With Friends Like Brazil, OPEC+ Doesn’t Need Enemies

The Brazilian coffee and oil industries have something in common. Espresso connoisseurs know the country’s coffee production follows a natural biennial cycle, alternating periods of low and high output. One year, the trees funnel most of their energy into growing new branches; another, into producing fruit. The country’s oil industry also appears to follow similar cyclicality, even if arbitrarily. Disappointing years, when growth underperforms even the most pessimistic expectations, are quickly followed by spectacular expansion periods.

After a very poor 2024, the Latin American oil giant is entering one of those phases of rapid growth. On current trend, Brazil will become the second-largest source of incremental non-OPEC+ oil production this year, only behind the US and ahead of Guyana, the other South American oil star that typically gathers more attention, and Canada. The timing couldn’t be worse for OPEC+, already battling with an oversupplied market and falling prices.

For some time, the Saudi Arabia-led oil cartel has tried to pull Brazil into its orbit, knowing that the latter nation was becoming a huge rival to its efforts to keep oil prices inflated. But all OPEC+ overtures — to successive right- and left-wing governments in Brasilia — have failed. The most Riyadh has achieved is for Brazil to cement its freeriding status: Since February, it’s been a formal member of the group’s so-called declaration of cooperation, joining the likes of Russia and Kazakhstan, which formed an alliance with OPEC+ nearly a decade ago. But unlike them, Brazil isn’t bound by any production obligations. Effectively, it got everything it wanted: access, influence and intelligence about what other oil nations are up to without giving away anything. That the cartel accepted the deal speaks volumes about its desperation to keep ties with Brazil alive.

With friends like Brazil, OPEC+ doesn’t need any enemies. The Latin American nation will add about 450,000 barrels a day of extra production in 2025 and 2026, equal to about a quarter of incremental demand during the period. The increase nearly matches the record 490,000 barrels a day it added in the 2022-2023 period. With a bit of luck, Brazil may even post its fastest growth period ever.

Differing from the US shale industry, where low oil prices quickly translate in less drilling, Brazilian petroleum production is largely immune to short-term changes in oil prices. Whatever the cost of Brent in 2025 and 2026, the extra Brazilian barrels are coming. Only future projects, perhaps as late as 2028 and 2029, would be affected. For now, state-run Petroleo Brasileiro SA and its foreign partners plan to develop a string of offshore oilfields, including the multiphase Buzios oilfield, which is on track to become Brazil’s largest by output, overtaking Tupi. Other notable developments include the Mero and Bachalao oilfields, where Shell Plc, TotalEnergies SE and Equinor ASA hold stakes.

The oil market went into 2024 also holding high expectations for Brazilian output. But a combination of delayed drilling approvals due to a strike by environmental officials, supply-chain glitches and widespread maintenance meant that production fell to an annual average of 3.44 million barrels a day, down from 3.49 million in 2023. Excluding the period during the Covid-19 pandemic, it was the largest annual decline in at least 25 years.

Understandably, the events of last year meant the market felt some trepidation about betting that Brazilian output will grow this year. By now, however, it’s clear a boom is following the bust. The strike by officials at the Brazilian Institute of the Environment & Renewable Natural Resources, which President Luiz Inácio Lula da Silva has described as “a government agency that seems to be against the government,” ended last June, opening the door to drilling. Petrobras, as the national oil company is known, has largely solved its supply-chain problems, as it started to order kit well ahead of when it needs it. And the extended maintenance of last year means that Brazilian oilfields need less annual work this time.