Brazil's ANP establishes Platts price references for new diesel subsidies

Brazil's National Oil, Gas and Biofuels agency, or ANP, has established reference markers that will be the base for the country's diesel subsidy program, it stated on March 27.

Amid a volatile international market, the agency established a dynamic formula for daily adjustments.

The formula encompasses levels previously established by the Ministry of Mines and Energy, or MME, on March 19, plus a regionally-weighted average of the variation in Platts import parity prices for ultra low sulfur diesel, or S10 as it is known in the country, subtracting the average of Platts USGC versus all-origin DAP spread for S10 imports.

Based on the formula, ANP will "regionalize" and fix the reference daily on a Real per liter basis, according to the statement. It will also take into account the average of two business days prior before adjusting the ceiling for subsidies.

Each Brazilian region will have its own Platts IPP locations used in a weighted average to determine its price variation since March 12, the date used in practice by the MME as the beginning of the price cap.

The agency also approved orientations for market participants who wish to adhere to the subsidy program, with further details pending publication on the website, according to the statement. The resolution is open to a five-day public consultation.

The Brazilian government decided to launch this diesel subsidy program to avoid heightened volatility in international fuel markets — mainly caused by the war in the Middle East — to be fully passed over to the consumer at the pump. For companies selling their products below that cap determined by the reference, there will be a Real 320/cubic meter subvention.

MME set the price cap for importers and refineries processing third-party crude oil at Real 5,510/cubic meter in the Center-West; Real 5,281/cubic meter in the Northeast; Real 5,309/cubic meter in the North; Real 5,294/cubic meter in the Southeast; and Real 5,310/cubic meter in the South.

Its ordinance also essentially created a two-tier system, since diesel produced using crude sourced in the country has a different ceiling. For those cases, which include state-owned giant Petrobras, prices are capped between Real 3,509/cubic meter in the Northeast and Real 3,864/cubic meter in the Center-West.

Based on ANP's new formula, in the Southeast, where the ministry set the cap at Real 5,294/cubic meter for March 12, the new reference would rise to Real 6,065.92/cubic meter. This calculation considers a Real 772.12 weighted average rise in the region on March 12-25, a 14.3-cent/gal spread between US- and all-origin ULSD cargoes in the country on March 25, and the Brazilian Central Bank's Real 5.2275/$1 forex rate for that same date.

Platts, part of S&P Global Energy Platts, last assessed S10 on an FCA basis at the Santos port, in the Southeast, at Real 5,872.60/cubic meter on March 27 — making it eligible for the subsidy. The FCA market tracks diesel at the tanks being negotiated in the domestic market on a spot basis.