(Bloomberg, 9.May.2022) — Brazil’s state-controlled oil giant Petroleo Brasileiro SA raised domestic diesel prices just days after President Jair Bolsonaro bashed the company for too-high profits.
After holding prices stable since March, Petrobras announced an 8.9% increase in diesel prices for distributors to 4.91 reais a liter ($0.96), it said in a statement Monday. It left gasoline prices unchanged.
It was the first adjustment under Chief Executive Officer Jose Mauro Coelho, who took the helm on April 14. Three of the company’s CEOs, including Coelho’s predecessor Joaquim Silva e Luna, have lost their jobs during periods of rising fuel prices.
Petrobras’s Profits Slammed by Bolsonaro in Election Year
On May 5 Bolsonaro, who’s up for re-election in October, criticized Petrobras’s “abusive profit” after the company announced a robust 44.56 billion reais in net income for the first quarter.
“I ask Petrobras to be responsible and not increase diesel prices,” the president said in a weekly address on social media.
The gap between Petrobras’s refinery gate prices and international levels has widened since the March price increase as crude rallied back above $110 a barrel, making it economically unfeasible to import gasoline and diesel to Brazil. The difference was 21% for diesel and 17% for gasoline on May 6, according to fuel importers association Abicom.
“The readjustment was a firm stance by Petrobras, ratifying the need to stick to market prices and its commitment to shareholders despite the political pressure from presidential candidates, including President Jair Bolsonaro,” Abicom president Sergio Araujo said in an interview Monday.
Araujo warned the increase is not enough to close the gap on diesel — now close to 8% –, and that some regional unbranded stations are facing supply difficulties.
UBS also flagged concerns of a fuel shortages down the line. “Upwards adjustments in prices could be needed in order to ensure Brazil’s supply of diesel, given the country’s structural need of imports for the fuel,” analyst Luiz Carvalho wrote in a note.
Petrobras Hit by Fuel Politics With Subsidies Surging All Over
The impact of rising fuel prices is adding pressure on the nation’s Economy Ministry to give subsidies, according to one person from the economic team with knowledge of the matter. This solution, however, is seen as costly and ineffective, the person said, asking for anonymity because the discussions are not public.
The government has already cut taxes on diesel and ethanol and congress approved a bill to change the way state taxes are charged on fuel to soften the impact in the domestic market. Further moves are limited not only by budget shortages, but also by spending restrictions due to the upcoming elections, the person said.
As a state-controlled company in a country where voters and politicians say the domestic oil industry should shield the public from international price swings, Petrobras’s management often comes under attack when prices surge. Coelho on Friday said Bolsonaro’s concerns about high fuel prices are legitimate, but also said management has an obligation to stick with its price policy.
“Fuel price increases must be made eventually to maintain the company’s financial health,” Coelho said.
By Mariana Durao and Peter Millard