Brazil keeps 12% oil export tax, to review measure in 30 days

• The export tax was extended despite Brent crude trading around $76/barrel, well below the $118/barrel peak reached shortly after conflict erupted in late February
• Tax revenues are being used to fund fuel subsidies including for diesel, gasoline, aviation fuel and cooking gas
• Government officials recently began a 'gradual retreat' from subsidies following lower oil prices, with a decision on removing gasoline subsidies expected next week

Brazil Maintains 12% Oil Export Tax Amid Market Volatility

Key Decision:

Brazil's foreign trade committee (Gecex) approved extending the 12% crude oil export tax for another 60 days on July 9, with plans to review the measure in 30 days. The levy was originally introduced in March in response to rising oil prices linked to geopolitical tensions.

Market Context:

Brent crude futures traded around $76 per barrel on Thursday, significantly below the $118 peak reached shortly after a late February conflict eruption. However, prices rose Wednesday to their highest level since June 22 due to intensifying Middle East tensions. The recent price retreat had prompted government officials to consider eliminating the export tax, though this option was ultimately shelved.

Policy Rationale:

President Luiz Inacio Lula da Silva's administration maintains the tax is temporary, designed to address "developments in the international scenario and their impacts on the oil and fuel markets." Revenue generated funds measures protecting consumers from war-related inflationary pressures, including subsidies for diesel, gasoline, aviation fuel, and cooking gas.

Future Actions:

The government recently began withdrawing some fuel subsidies following Brent price declines. Finance Minister Dario Durigan indicated a decision on removing gasoline subsidies would be postponed until next week.

Market Implications:

The tax extension signals Brazil's cautious approach to volatile energy markets, balancing export revenue against domestic consumer protection. The 30-day review window suggests flexibility in responding to oil price movements, though current Middle East tensions support maintaining fiscal buffers. This impacts Petrobras operations and Brazil's position as an oil exporter in global markets.