Brazil's Petrobras sets monthly ULSD sales record in March

Rio de Janeiro — Brazilian state-led oil company Petrobras set a fresh record for ULSD sales in March, shrugging off maintenance shutdowns and boosting refinery output to 80.2% of installed capacity, the company said April 1.

Petrobras sold about 416,000 b/d of ULSD in March, topping the previous record of 407,000 b/d set in October 2020 by 2.2%, the company said. Total diesel sales also jumped 35% year on year to 791,000 b/d.

"The record ULSD sales and growth in total diesel sales reflect commercial and operational acts implemented by the company with the objective of mitigating the effects of the COVID-19 pandemic on fuel demand," Petrobras said. Petrobras has been increasing output of S-10 diesel, which contains 10 parts per million sulfur content, in an effort to substitute for dirtier S-500 diesel.

Most new heavy equipment and vehicles produced in the past decade run on ULSD, but some older equipment manufactured before 2010 still burns the higher-sulfur fuel, according to industry officials.

The record-setting sales came as a surprise given a recent surge in coronavirus cases and deaths that has led to lockdowns across Latin America's largest economy. Rio de Janeiro state, for example, implemented a 10-day holiday in late March as Brazil's death toll soared to more than 3,500 a day. In addition, the country's massive agriculture sector, which consumes hefty volumes of diesel, was currently exiting the fallow period between harvests and just starting to ramp up activity.

The agriculture sector played a key role in supporting domestic demand in the second half of 2020, when record-setting harvests stoked consumption of the fuel.

Fourth-quarter 2020 diesel sales jumped 8.2% year on year to 754,000 b/d, Petrobras said in a Feb. 2 production and sales report. Sales, however, sank 5.2% to 687,000 b/d in 2020. ULSD represented 48% of diesel sales in 2020, including 55% in December, according to Petrobras. That was up from a 41% share of diesel sales in 2019.

The strong second-half 2020 demand for ULSD also led to production records at several refineries, with the Refinaria de Paulinia, or REPLAN, in Sao Paulo state and the Refinaria Alberto Pasqualini, or REFAP, in Rio Grande do Sul state setting records in October; Refinaria Presidente Bernardes, or RPBC, in Sao Paulo state in November; and Refinaria Gabriel Passos, or REGAP, in Minas Gerais state in December, Petrobras said.

Petrobras had previously indicated that the recovery in diesel demand was gaining momentum in 2021, including officials saying that January sales had surpassed pre-pandemic levels in the first month of the year.

Data from the National Petroleum Agency, or ANP, had indicated a slowdown in demand over the past three months primarily related to softer agricultural activity. Diesel sales retreated for a third consecutive month in February to 27.68 million barrels, the ANP said March 31.

Output boost?

While future sales growth remained uncertain given the country's bearish outlook during the pandemic, Petrobras also indicated that refinery utilization rates had rebounded from recent lows despite contradictory reports from the ANP and Mines and Energy Ministry. Petrobras said the company's refinery utilization factor was at 80.2% in March.

But refinery utilization rates had trended lower in February and March, according to the Mines and Energy Ministry's coronavirus impact report released March 29. Refinery capacity utilization oscillated between 77% and 82% for much of February before plummeting to about 68% in early March. The rate was 72% as of March 28, according to the ministry.

Petrobras operates about 98% of Brazil's refining capacity.

Diesel output was also down slightly year on year in February, according to the ANP. Refineries produced 20.632 million barrels of diesel in February, down 0.1% from 20.643 million barrels in February 2020, the ANP said March 30. Seasonal factors were at play in February, which featured the Carnival holiday and fewer business days, but diesel output during the month also slid 6.4% from January's 22.031 million barrels.

Future output could be affected by maintenance and expansion projects; Petrobras added that March's sales record was achieved despite obligatory stoppages at three undisclosed refineries. While the projects will eventually boost diesel production capacity, output could see downturns in coming months.

For example, Petrobras started preparations to conduct maintenance at the Refinaria do Nordeste, which is also known as Abreu e Lima and RNEST. The company also said March 3 that it was starting preparations to increase ULSD output at the Refinaria Duque de Caxias, or REDUC, outside Rio de Janeiro. The expansion project will double ULSD output at the refinery by 2023. Additional expansion projects are scheduled for two other refineries later in the year.

The lost output could be partially offset by the country's higher biodiesel blend, which increased to 13% March 1. Brazil plans to increase the volume of biodiesel blended with diesel sold at the pump to 15% by March 2023.