Traffic jam in Presidente Dutra highway. Photo: N. Antoine

Latin America has glaring infrastructure problems. The region is highly dependent on roadways, meaning that the population is left severely exposed to alterations in fuel prices. Last year, truckers nearly brought Brazil to a complete halt, striking for ten days in protest against the extreme volatility of diesel costs. In Ecuador, fuel price increases sparked a series of demonstrations that led to eight deaths, 1,300+ injured, over 1,000 arrests and the declaration of a state of emergency.

</p> <h2>Brazil and the Petrobras dilemma</h2> <p>As we&#8217;ve explained in the past, the federal government has a <a href="">major role in dictating fuel prices</a> in Brazil. That&#8217;s because Petrobras, the state-owned oil giant, controls roughly 98 percent of the oil refining market.</p> <p>This situation has opposed government officials and the firm&#8217;s minority shareholders. The former is concerned with Petrobras&#8217; role in governmental policies and its institutional symbolism, whereas the latter simply cares about the company’s bottom line.</p> <p>During Dilma Rousseff’s administration, Petrobras was used to tame inflation rates by essentially freezing fuel prices—regardless of what happened in the international crude oil market. The company ended up selling fuel at below market value, especially during the 2014 electoral season.</p> <p>Under Michel Temer and Jair Bolsonaro, the company has kept up with international fluctuations, constantly changing its tariffs. Between 2016 and 2018, these changes often happened on a daily basis—a policy the company corrected after the <a href="">truckers&#8217; strike</a>.</p> <p>In order to lower prices, the sitting administration wants to end Petrobras&#8217; de facto monopoly, selling off most of the company&#8217;s refineries and increasing competition.</p> <h2>How fuel prices evolved in 21st-century Brazil</h2> <p>Nominal gasoline prices are now 2.5 times higher than in July 2001. But the following graph, with nominal figures in Brazilian Reals, is perhaps not the best way to observe the evolution of fuel prices in Brazil.</p> <div class="flourish-embed" data-src="visualisation/774701"></div><script src=""></script> <hr class="wp-block-separator"/> <p>This chart, factoring in inflation, shows us that average prices have actually gone <em>down</em> for gasoline and ethanol. The government price control policies have a lot to do with it.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/774868"></div><script src=""></script> <hr class="wp-block-separator"/> <p>As gasoline fares remained somewhat stable, ethanol producers also had to hold their prices down. The biofuel is used by Brazilian drivers as an alternative to gasoline—in order not to lose their market, ethanol plants were unable to raise their fares.</p> <h2>Monthly price variations per fuel type </h2> <p>More than any other fuel type, ethanol shows the largest volatility, as its price is subjected to more variables than gasoline and diesel—including sugar prices and weather conditions, among others.</p> <div class="flourish-embed" data-src="visualisation/774928"></div><script src=""></script> <div class="flourish-embed" data-src="visualisation/774942"></div><script src=""></script> <div class="flourish-embed" data-src="visualisation/774898"></div><script src=""></script> <div class="flourish-embed" data-src="visualisation/774934"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>When is it worth it to fill up with ethanol?</h2> <p>Brazil started experimenting with <a href="">vehicular sugarcane-based ethanol</a> in 1975, after a major hike in international oil prices. After the launch of the Brazilian Alcohol Program, ethanol production increased considerably from 600 million to 11.8 billion liters between 1975 and 1986. In the 2016–2017 harvest, Brazil produced 27.2 billion liters of <a href="">ethanol</a>.</p> <p>But the fuel is much less potent than gasoline. For it to be cost-effective, it needs to cost no more than 70 percent of gasoline.</p> <div class="flourish-embed" data-src="visualisation/802777"></div><script src=""></script> <p>

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BY The Brazilian Report

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