Brazil’s Petrobras sets unusual gasoline tender, heating up price cut expectations

A significant large-volume gasoline tender is set to hit the slow-demand, well-supplied Center-South Brazil market on Jan. 23 amid growing expectations for a Petrobras price cut.

Brazilian state-controlled oil company Petrobras offered 550,000 cubic meters of gasoline across four Center-South regions.

In an unusual move, the company established the tender's reference prices based on its Jan. 22 postings, heightening expectations for a price cut at the month's end. Final tender prices are usually set at a differential to Petrobras' posted levels on the delivery date, which, in this case, was set for the end of February.

"I was not expecting a price cut anymore, but this changes everything," said a participant at a private refiner.

Brazil's Center-South region kicked off the year with abundant volumes and weak demand, drying up liquidity at the local Santos and Paranagua spot markets.

An already seasonally slow January gasoline A (unblended) market was slowed further by elevated anhydrous ethanol levels. Participants reportedly gave up on part of their monthly quotas with Petrobras to rely more strongly on discounted tender volumes and competitive imports for additional supply.

At least 206,650 cubic meters of gasoline have reached the region's Santos and Paranagua ports as of Jan. 23, surpassing November and December full-month imports to those ports, according to preliminary data from port line-ups, sources and S&P Global  Commodities at Sea data.

"Our expectation is that there will be leftover [tender] volumes in all regions," said a fuels trader at a big distributor.

Platts assessed the import parity in Santos at Real 2,363.73/cubic meter Jan. 22, Real 357.07 below Petrobras' EXA Paulinia reference at the port. FCA gasoline Santos was assessed at Real 2,520.80/cubic meter, Real 200 below the Paulinia reference.

Meanwhile, Petrobras set the tender's starting bid at a discount of Real 260 against its Jan. 22 levels, positioning itself between domestic port levels and the arbitrage.

The total volume offered in the sale represents approximately 28% of total November gasoline A sales in the Center-South region, according to the latest data from Brazil's National Petroleum Agency, or ANP. Tenders in the past four months have offered a third of the region's gasoline A needs.

Market dynamics

An extensively open arbitrage window and a Jan. 1 mandated state tax rise on gasoline and anhydrous ethanol had previously led participants expecting a price cut at the turn of the year.

Petrobras offered, instead, 450 Mcm in a December Center-South tender with a starting bid discount of Real 220 against its references, right at the arbitrage levels. Some participants told Platts at the occasion that it was the highest tender volume they had ever seen offered by the company.

At the time, Petrobras sold a total of 395,850 cubic meters of gasoline at discounts between Real 220 and Real 20 against its reference prices as participants rushed to build inventories ahead of the tax rise. December bids were priced against January posted levels at delivery, which usually happens at the end of the month, holding the refiner's prices stable through the start of the year.

The Brazilian arbitrage window has been open for the past 65 days, with average import parity prices reaching discounts as low as Real 360/cubic meter against domestic prices on Jan. 8, according to reports by the Brazilian Association of Fuel Importers, or Abicom, opening an opportunity for competitive import arrivals. This has further mounted pressure on Petrobras to cut its gasoline postings.

The state-controlled company last cut prices by Real 140 on Oct. 21, reaching a 26-month low. According to participants, the arbitrage at the time could have allowed for a larger cut, opening the door to another cut in a short interval.

Ethanol market watches cautiously

In the ethanol market, unlike in previous episodes, Petrobras' tender had an immediate impact on liquidity. Spot trading had already been slower than in previous weeks, and the market effectively stalled following the tender announcement, with negotiations becoming increasingly scarce across the Center-South.

The widespread view that the January tender's pricing timeline could signal a potential downward adjustment in Petrobras' domestic gasoline prices sparked apprehension among buyers across the fuel supply chain. Concerns arose that such a move could further tilt pump-price parity in favor of gasoline, potentially triggering a pullback in spot ethanol prices.

"February is right when the ethanol market expects prices to peak," said a participant at a company in the ethanol supply chain. "I'm not sure how much a potential gasoline price adjustment would affect demand for hydrous or how long it would take to have an impact, but if ethanol prices were to fall sharply as well, it would add more pressure on producers who already have weak expectations for the next crop year."

Hydrous ethanol in Southeast Brazil averaged 71.89% of the gasoline pump price in the week ending Jan. 17, according to oil regulator ANP, underscoring the biofuel's reduced price competitiveness versus its fossil rival, as effective parity is generally considered to lie below the 70% threshold.

The news also drew close attention from ethanol producers as a fuel price adjustment could introduce a ceiling on how high ethanol prices can rise during the inter-harvest period.

Traditionally, producers adopt a "carry" strategy, building inventories during the production season and holding volumes into the Center-South inter-harvest period, when prices typically peak, allowing for stronger returns toward the end of the crop year. However, the possibility of a gasoline price cut -- precisely as ethanol prices approach their seasonal highs -- puts this strategy at risk.

Even if it does not fully undermine the approach, it raises questions about whether prices will reach the levels producers had previously targeted. While such an adjustment would not necessarily drive hydrous ethanol prices sharply lower, it would likely cap further upside, limiting price appreciation during the inter-harvest period.