Diesel price drops with record production and Russian invasion – 07/24/2023 – Market

Petrobras’ production records and the invasion of Russian diesel in the Brazilian market have brought down fuel prices, which are essential for transporting cargo in Brazil. The scenario even led the largest Brazilian private refinery to export the product due to lack of competitiveness in domestic sales.

Last week, the average price of S-10 diesel at Brazilian service stations was R$ 4.99 per liter, below R$ 5 for the first time since May 2021. In the first week of January, the liter cost R$ 6.60, in values ​​corrected for inflation.

It was the 29th consecutive week of decline, even without price cuts at Petrobras’ refineries since May 16, when the state-owned company announced a change in its commercial policy and abandoned the import parity.

In the same month, Petrobras set a monthly record for the production of S-10 diesel, with 2.06 billion liters, a mark surpassed by the 2.11 billion liters in June.

At the same time, Brazil began to be invaded by diesel from Russia, much cheaper than imports from the United States, which contributed to reducing prices.

In June, for example, the Russian product accounted for two thirds of Brazilian imports, breaking a record in volume for the second consecutive month. There were 687 million liters in the month, up 6.7% compared to the record seen in May.

According to Amance Boutin, an expert in fuels from consultancy Argus, Russian diesel arrived in Brazil in June at R$ 0.19 per liter less than diesel purchased from other countries.

The number of buyers has skyrocketed, with more companies having access to payment alternatives for imports that circumvent the financial embargoes established after the outbreak of the war in Ukraine.

“Whoever manages to import this type of product has an advantage over the rest of the market”, says Boutin, pointing out that Brazil has become the second largest market for Russian diesel, behind only Turkey.

Favorable for truck drivers and with positive impacts on the cost of food, the excess supply of diesel in the country has caused difficulties for producers.

Controller of the Mataripe Refinery, in Bahia, Acelen, for example, has already had to send loads of diesel abroad due to lack of conditions to compete in the Brazilian market.

Petrobras itself even held two diesel auctions to free up space in its tanks. In these auctions, it receives an even lower value for the product than what it has been officially charging for the products, already outdated in relation to international quotations.

At the opening of the market this Monday (24), the liter of diesel sold by the state-owned company was, on average, R$ 0.59 below the import parity measured by Abicom (Brazilian Association of Fuel Importers).

Considering private refiners, the average delay for Brazilian diesel is R$ 0.55 per liter.

Petrobras abandoned the concept of import parity in its new pricing policy and says it now defines values ​​also considering production costs and competition for customers. Since then, it has maintained its prices below international quotations.

The lag calculated by Abicom this Monday is the largest since the end of October 2022, when the company held back high international oil prices to avoid negative effects on the campaign for the re-election of former President Jair Bolsonaro (PL).

Shortly after Bolsonaro’s defeat in the second round, the state-owned company raised prices.

Competitors complain about the high lags and say that Petrobras will feel impacts on its profitability, which should already be seen in its balance sheet for the second half, with disclosure scheduled for the first week of August.

“Fuel prices significantly below international quotations may discourage other companies from importing the volumes needed to supply the market”, wrote analysts Bruno Amorim, João Frizo and Guilherme Costa Martins two weeks ago.

Thus, Petrobras could be obliged to guarantee the supply alone, with the risk of losses due to the sale of products below cost price, as occurred during the Dilma Rousseff government.

In a note, Petrobras says that the Brazilian market for S-10 diesel has shown growth throughout 2023 and that it has been serving its customers with “reliability and profitability” through greater use of its refineries.

The company also states that “byproduct sales auctions are a practice frequently used by the company within its commercial strategy.”

“Petrobras clarifies that its commercial strategy is premised on the practice of competitive prices and in balance with the national and international markets, taking advantage of its best production and logistics conditions, while avoiding the pass-through of the conjunctural volatility of international prices and the exchange rate”, he concludes.