Petrobras hits production record as Middle East chaos reshapes oil strategy.

Petrobras kicked off second-quarter earnings season with operational data that reveals just how profoundly the war in Iran and the closure of the Strait of Hormuz have reshaped the Brazilian state oil company's strategy — and potentially its valuation. Total oil and gas output reached 3.336 million barrels of oil equivalent per day in the quarter, an all-time high for the company's own production and a 14% jump from the same period in 2025, according to figures released by the company. Crude output hit 2.689 million barrels per day, driven by the pre-salt layer, whose volume reached 2.299 million barrels, sustained by the accelerated ramp-up of the FPSOs Maria Quitéria, Alexandre de Gusmão, P-78, and the early startup of the FPSO P-79 at the Búzios field — roughly three months ahead of schedule. JPMorgan highlighted that Búzios remains the company's flagship asset. At the same time, Petrobras posted record refining volumes for the half-year and cut fuel imports to the lowest quarterly figure in its history, a deliberate response to the surge in international oil prices triggered by the Middle East conflict. The company signaled a dividend of roughly US$3 billion for the quarter. Its common and preferred shares traded on B3, as well as its ADRs on NYSE, should react positively when the full financial results are released.

This operational performance from Petrobras is unfolding against a macroeconomic backdrop that, on the surface, appears contradictory: Brazil is showing simultaneous signs of structural strength and emerging fragility. The July IPCA-15 surprised analysts by printing at just 0.06%, following 0.41% in June, with in-home food prices retreating 1.14% — the sharpest drop for the month since 2010, according to IBGE. The food deflation partly reflects a record coffee harvest, though excess rainfall in producing regions is delaying the harvest and the grain's arrival to market, while El Niño threatens the coming season. São Paulo registered the largest price drop of the year, for the third consecutive four-week period, according to Fipe data. This food disinflation eased the headline index, but coexists with pressures in other segments and still-elevated interest rates — making the monetary policy scenario delicate on the eve of the Federal Reserve's decision, which markets expect will hold rates between 3.5% and 3.75%.

The dollar reacted with restraint to the benign inflation reading, closing at R$5.121 on Tuesday with a mere 0.17% gain, while the Ibovespa advanced. The Central Bank announced rollover auctions for FX swaps maturing in September starting August 5, signaling active exchange rate management. More telling was the BC's own data showing that foreign direct investment grew 33% in the first half of 2026 compared with the same period a year earlier, with June inflows comfortably beating expectations. This flow contrasts with the current account deficit and with the all-time record for Brazilian tourist spending abroad: US$12.6 billion in the first half, the highest reading since the series began in 1995. The relative appreciation of the real and buoyant domestic income partly explain the number — but they also weigh on the external accounts.

The tension between near-term strength and structural fragility surfaces equally in the credit sector. Real estate credit grew 23% in the first half, moving R$180.9 billion, a performance described as above expectations even amid high rates. Caixa Econômica Federal will distribute R$13 billion in FGTS profits to 138.2 million workers, and the government announced a 30-day extension of Desenrola Brasil 2.0 through August 31 — a decision confirmed by Finance Minister Dario Durigan, who then publicly defended the fiscal framework and criticized the opposition's lack of economic proposals in an election year. But the same week that delivered this consumption stimulus also revealed that Santander Brasil posted managerial net income of R$3 billion in the second quarter, down 17.6% from the same period in 2025 and 20.4% quarter-on-quarter, pressured by delinquencies — a formal opening of bank earnings season with a yellow flag on credit quality across the system.

Fiscal tensions also intensified. President Lula stated he wants to include in his re-election platform a science and technology investment proposal funded with resources "outside the fiscal framework," a remark that jolted the debate just as his finance minister was reaffirming fiscal responsibility. The TCU announced it will review an accounting reclassification carried out by the economic team that allowed R$5.2 billion in expenditures to count toward meeting the constitutional health floor — yet another layer of uncertainty over the integrity of public accounts. And a Senate committee approved in a lightning vote a bill that could add more than R$1 trillion in additional costs to electricity bills, which, if confirmed, would represent a regulatory shock of historic proportions for the power sector.

On the external trade front, the Lula government once again turned to the World Trade Organization against U.S. tariffs that could reach 37.5% on Brazilian products, while announcing a working group to advance a deal between Mercosur and South Korea. Copersucar, the world's largest sugar and ethanol trader, approached the government to complain about difficulties accessing the Brasil Soberano program, created to bail out exporters hit by the tariff shock and the closure of the Strait of Hormuz. Industry, in turn, saw FGV's Confidence Index retreat 2.9 points in July to 97.2, the largest monthly drop since September 2025, with deterioration in 14 of the 19 segments surveyed and the Expectations Index hitting its lowest level since last December — a direct reflection of U.S. tariff instability and the approaching electoral cycle.

In the coming days, attention will focus on the Fed's decision, on Petrobras's full financial results and those of Brazil's other major banks, on the Sabesp shareholders' meeting to vote on the incorporation of Emae scheduled for Thursday, and on the evolution of the fiscal debate — where Senate pressure over electricity bills and Lula's remarks on extra-budgetary spending on technology will put the fiscal framework under political stress in the middle of an election year.

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**Petrobras (NYSE: PBR; B3: PETR4)** — The state-controlled oil company posted record production of 3.336 million boed in the second quarter, up 14% year-on-year, driven by the pre-salt layer and the early startup of the FPSO P-