Brazil's Petrobras to increase diesel, gasoline prices by 5%, effective March 2

Rio de Janeiro — Brazilian state-led oil company Petrobras increased domestic diesel, gasoline and LPG prices at the refinery gate, effective March 2, in a move that continued a string of price hikes to start 2021 as the company scrambles to maintain parity with imports amid rising oil prices, the company said March 1.

Petrobras boosted the price of wholesale diesel 5% to $0.48/liter, or by about $0.02/l, the company said. That was the fourth increase to domestic diesel prices since the start of 2021, according to Petrobras. In addition, gasoline was elevated 4.8% to $0.46/l, or by $0.02/l. That was the fifth increase to gasoline prices so far in 2021, the company said.

LPG prices, meanwhile, advanced $0.03/kg to $0.54/kg, or about $7.09 for a 13-kilogram tank, Petrobras said. The 13-kilogram tanks are used by many Brazilians in rural and remote regions not served by traditional natural gas distribution networks to power cooking stoves.

The latest increases continued Petrobras' attempt to keep domestic prices at parity with international imports, but will likely draw additional ire from President Jair Bolsonaro. While Bolsonaro has supported market-friendly policies and has worked to liberalize Latin America's biggest economy, public outrage about high fuel prices from key constituents has led to a more populist tone in recent weeks.

Bolsonaro warned Petrobras of consequences after the company implemented a 14.7% increase to diesel and 10.2% hike to gasoline on Feb. 19. The president criticized Petrobras CEO Roberto Castello Branco for the price hikes and comments the executive made about independent truckers in late January.

Castello Branco blamed bad roads and too many trucks on the road for the group's troubles, which he said wasn't Petrobras' problem.

Bolsonaro then nominated former Army Reserve General Joaquim Silva e Luna to be CEO, effectively firing Castello Branco. Castello Branco's term was scheduled to end March 20, but could have been extended. Silva e Luna is currently having his credentials evaluated by Petrobras' internal governance procedures, but should be approved by the company's board later in March.

Silva e Luna is expected to roll back some of Petrobras' most-aggressive pricing techniques, with the executive saying in televised comments that he would strive for "balance" in refined-product pricing. Silva e Luna previously served as defense minister in 2016 and has been the Brazilian director at the Itaipu Binacional hydroelectric dam project since 2019.

The move raised concerns about a return to government meddling at the company, which came at a delicate time because Petrobras is in the process of selling eight of its 13 operated refineries under an antitrust agreement. The first refinery sales contract was signed in February, but issues over pricing could have a chilling effect on the sales process, industry officials said.

Petrobras was previously forced to sell expensive diesel and gasoline imports at a loss in the domestic market in 2011-2014. The ruling Workers' Party government, or PT, wouldn't allow Petrobras to pass along higher crude prices along to consumers at the pump for fear of stoking inflation. Analysts estimate that the policy cost Petrobras tens of billions of dollars in lost profits.

Import-parity pricing was expected to end the government interference.

Petrobras also faces pressure from third-party importers, which see arbitrage windows shuttered when Petrobras is selling diesel and gasoline at below-market rates. Importers sent a letter in January to the Justice Ministry's Antitrust Division, known as CADE, complaining about Petrobras' predatory pricing practices because it was selling domestic fuels at a discount to international prices.

CADE halted a previous investigation into Petrobras' pricing practices in 2019, when the company agreed to end its monopoly in the refining business, sell eight refineries and reduce its market share to 50%. Petrobras has until December 2021 to complete the sales.