Brazil's Petrobras boosts domestic diesel, gasoline prices effective March 9

Rio de Janeiro — Brazilian state-led oil company Petrobras will increase domestic diesel and gasoline prices at the refinery gate, effective March 9, in an attempt to maintain import parity as global oil prices surge with the rollout of COVID-19 vaccines, the company said March 8.

Petrobras raised the price of wholesale diesel 5.5% to an average of 50 cents/liter, the company said. That was the fifth increase to diesel prices in 2021, according to Petrobras. Wholesale gasoline prices, meanwhile, were increased 8.8% to 49 cents/l. That was the sixth increase to gasoline prices in 2021.

The price hike continued the tug-of-war between Petrobras and Brazil's president Jair Bolsonaro, who appointed a replacement for company CEO Roberto Castello Branco in mid-February amid a battle over the company's pricing policy. Castello Branco will serve until March 20. Bolsonaro's appointee, former Army general Joaquim Silva e Luna, is expected to take a more balanced approach to a policy that seeks to keep domestic wholesale fuel prices at parity with international imports.

Castello Branco, however, has reiterated since his ouster the importance of maintaining the policy and continued to increase wholesale prices in step with advancing international oil prices, much to Bolsonaro's ire. Petrobras has implemented several price increases since the change, including a 5% increase to diesel, gasoline and LPG prices on March 2.

"The alignment of domestic fuel prices to international markets is fundamental to guarantee that the Brazilian market continues to be supplied, without risks of shortage, by the different actors responsible for meeting demand across Brazil: distributors, importers and other refiners besides Petrobras," the company said. "This same competitive balance is responsible for the price reductions when supply grows in international markets, such as what happened during 2020."

Diesel prices fell 13% year on year in 2020 because of the pandemic, according to Petrobras.

More government involvement?

Despite the moves, investors have grown increasingly concerned about a return to government involvement at the company. Many of the recent changes have been driven by Bolsonaro's attempts to please key supporters such as independent truckers, who voted for him during the 2018 elections. Bolsonaro's administration was rocked by truckers' failed attempt to strike Feb. 1, and pledged to make changes, including reducing federal fuel taxes on diesel to zero for two months on March 1.

While Petrobras is technically free to set prices, the government is the company's leading shareholder and controls the board of directors.

Petrobras lost an estimated $20 billion-$40 billion in profits during 2011-2014, according to analysts, when it was forced to sell expensive diesel and gasoline imports at a loss in the domestic market. The government prevented Petrobras from passing higher oil prices along to consumers at the pump for fear of stoking inflation.

The company eventually implemented the import-parity pricing model in 2016 amid a financial and management overhaul after a corruption scandal was discovered in March 2014. The policy was lauded by analysts and investors, but criticized by a public that was often hit with near-daily price adjustments.

The policy was then adjusted in mid-2018 after independent truckers started a nine-day walkout in May to protest high diesel prices that left most major Brazilian cities without food, fuel and medicines. Brazil implemented a six-month diesel subsidy to end the strike, while Petrobras agreed to make less-frequent price adjustments while still maintaining import parity.

Castello Branco continued to make the policy more flexible since taking over in 2019, including a recent move to use a 12-month time period to calculate import parity rather than on a quarterly basis. The move was aimed at softening the pace of increases.

The global recovery from the coronavirus pandemic, however, has complicated efforts at a time when Brazil is still struggling with the world's second-deadliest outbreak, including a record number of deaths March 5 during a second wave. Vaccinations in major economies drove oil prices to January 2020 highs above $70/b in recent days.

Retail prices have also surged since the start of 2021, with major retailers attempting to boost service-station margins to offset lackluster 2020 sales, price data from the National Petroleum Agency, or ANP, showed. Before the latest increase, domestic retail diesel prices had advanced 16.4% to an average of about 74 cents/l and gasoline prices jumped 17.1% to an average of about 92 cents/l through March 5, according to the ANP.