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Number of the week: Rising diesel prices cause government headache

. Feb 20, 2021
Number of the week: Rising diesel prices cause government headache Petrobras dominates the oil refining business in Brazil. Photo: Alf Ribeiro/Shutterstock

From now on, Numbers of the Week will become Number of the Week, where we choose a single figure that helps understand what is going on in Brazil. This week’s number is the hike in diesel prices this year:

28 percent

Petrobras, Brazil’s state-controlled oil and gas company,

announced another price increase in diesel and gasoline sold by refineries to fuel distributors. This is already the third time Petrobras has <a href="http://www.anp.gov.br/precos-e-defesa-da-concorrencia/precos/levantamento-de-precos/serie-historica-levantamento-precos">raised</a> diesel prices this year, and the fourth increase for gasoline. Since January 1, <strong>diesel has gotten 28 percent more expensive</strong> — and gasoline prices have jumped 35 percent.</p> <p><strong>What is happening.</strong> Petrobras is a publicly-traded company in which the government has a controlling stake. But policymakers and minority shareholders have very different interests — and that rift is never more evident than when it comes to fuel prices.&nbsp;</p> <ul><li>Petrobras&#8217; dominance of the oil refining industry makes it <em>the</em> most influential player when it comes to fuel prices. But while keeping prices low is beneficial for the government, shareholders profit more when fares are higher.</li></ul> <p><strong>Pricing changes. </strong>Since 2016, Petrobras decided to peg the cost of oil to international prices, which have rallied as of late. That pricing policy ended the era of controlled fares established by former President Dilma Rousseff, which helped make Petrobras the world’s most-indebted oil company. But <a href="https://brazilian.report/business/2018/05/28/petrobras-oil-prices-brazil/">leaving fuel prices</a> to the proverbial invisible hand of the market can create other problems, such as inflation and dissatisfaction.</p> <ul><li>The issue of fuel prices becomes even more pressing amid a pandemic, which encourages individual transportation as a safety measure.</li></ul> <p><strong>Why it matters.</strong> Diesel prices directly impact the livelihoods of Brazilian truck drivers — who are responsible for transporting <a href="https://brazilian.report/business/2018/05/25/truckers-protests-brazil-fuels/">60 percent of all cargo in the country</a>.&nbsp;</p> <ul><li>In 2018, an 11-day truckers’ strike pushed Brazil into chaos and caused billions of dollars in losses. Unions tried to stage a similar protest early in February, but political divisions <a href="https://brazilian.report/power/2021/02/02/why-brazils-latest-truckers-strike-was-a-massive-flop/">prevented the strategy from being successful</a>.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/4972644"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Intervention.</strong> President Jair Bolsonaro is threatening to interfere with the company by making changes to its leadership. In a cryptic message on social media this Thursday, he said &#8220;something is going to happen in Petrobras&#8221; in the next few days. On Friday evening, he pulled the trigger.</p> <ul><li>Mr. Bolsonaro <a href="https://www.facebook.com/jairmessias.bolsonaro/photos/a.250567771758883/2299207500228223/">announced</a> on Facebook that he intends to change Petrobras&#8217; CEO Roberto Castello Branco. He suggested retired <a href="https://brazilian.report/business/2021/02/19/breaking-jair-bolsonaro-to-change-petrobras-ceo-now/">Army General Joaquim Silva e Luna</a> be appointed as his replacement.</li><li>Markets had already reacted poorly to the president&#8217;s veiled threats on Thursday night, as Petrobras shares dropped 6.63 percent on Friday. Indeed, the stock market is set to take a pounding come Monday morning after Mr. Bolsonaro&#8217;s latest declaration. <em>We explain this in detail in our </em><a href="https://brazilian.report/newsletters/brazil-daily/2021/02/19/bolsonaro-threatens-to-interfere-in-petrobras/"><em>February 19 Daily Briefing</em></a><em>, for premium subscribers only.</em></li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/5344034"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>

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Lucas Berti

Lucas Berti covers international affairs — specialized in Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.

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