An Oil Auction Provides Brazil a Needed Boost

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Once thought to be complex and costly, blocks like those auctioned Thursday — known as pre-salt areas — in Brazil have become competitive as oil companies have used improved technology to reduce costs of deepwater drilling and worked in consortiums to reduce their financial risk.

“You are not seeing this in any other area of the world,” said Ricardo Bedregal, who specializes in Latin American oil and gas for IHS Markit.

But Brazil’s oil industry still remains subject to extensive government interference, as demonstrated by the recent strike. President Michel Temer agreed to subsidize gasoline and diesel at the pump to get truckers to end their strike.

The strike and the government’s response prompted the reform-minded chief executive of Petrobras, Pedro Parente, who had won praise for restoring stability to the company, to resign because he said he could no longer help the company and government.

Analysts say the government might be tempted to intervene in the industry and the economy again ahead of a presidential election in October. Brazil’s economy is expected to grow 2.18 percent in 2018, according to a survey of analysts released on Monday by the country’s central bank. That’s down from a predicted 2.7 percent just four weeks ago.

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