Brazil’s state-controlled oil giant Petrobras announced on Tuesday that it will cut diesel and gasoline prices in its refineries by an average 12 percent, lowering rates to BRL 3.02 and BRL 2.78 per liter, as well as reducing the price of cooking gas by 21.4 percent to BRL 2.53 per kilo. The 13-kilo cylinder, most commonly used in Brazilian households, will now cost distributors BRL 31.96.
All price adjustments are effective as of tomorrow, May 17. The announcement came hours after Petrobras informed in a securities filing that it was officially changing its pricing policy.
The market’s reaction to the latest developments has been mixed. While the company’s shares rose more than 3 percent — probably because its investors expect more billionaire returns with the giant’s new aggressive attitude — some analysts and major banks viewed the company’s decision with caution, admitting they were expecting something worse, a direct intervention.
For the better part of the last decade, Petrobras pegged its prices to international oil rates. Now, the company will consider two factors when adjusting prices: the “customer’s alternative cost” and the “marginal value” for the company.
“The adjustments will continue to be made without a defined periodicity, avoiding the transfer to domestic prices of the cyclical volatility of international prices and of the exchange rate,” the company informed.
Petrobras prices are crucial to Brazil’s domestic fuel market, as the state-controlled company controls roughly 84 percent of the country’s refining capacity, according to data from the National Oil Agency. President Luiz Inácio Lula da Silva had been critical of the international peg, complaining that Brazil’s fuel prices should be set in Brazilian reais, not U.S. dollars.
Since the start of the Lula administration and even before the pricing policy change, Petrobras had modified the final part of its official statements.
The explanation at the foot of notices to the market, that generally said that the company seeks balance between its prices and those of the international market at each readjustment — and that this approach was maintained during the Jair Bolsonaro government —, was replaced this year by a very different justification, saying that Petrobras alters prices with the aim of maintaining its competitiveness “in the face of its customers’ main supply alternatives and the necessary market share for the optimization of refining assets in balance with the national and international markets.”
During his time as a senator, current Petrobras CEO Jean Paul Prates, who was appointed by Lula, introduced bills to “stabilize” fuel prices to avoid economic shocks for the Brazilian public.
Economist André Perfeito said the change to the pricing policy will be tested. Considering that Brazil is still not self-sufficient in refining, Petrobras won’t be able to totally abandon some kind of parity with international prices — even though the new policy tries to correct the problematic dollarization of Brazil’s fuel.
Mr. Perfeito also raised concerns about how the Central Bank will react to the company’s new approach toward prices and competitiveness, and if this might somehow change the bank’s hawkish monetary policy.
“The way relations are [between the government and the Central Bank], we can imagine that central banker Roberto Campos Neto has one more card up his sleeve for his strategy of raising interest rates, but I would suggest caution [in assessing the new policy]. If we know anything about Lula, it is that he speaks rhetorically to the left, but is usually right-handed when using the pen,” Mr. Perfeito said.
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