Russia “got out of zero” and became the largest diesel supplier in Brazil

At the end of July, Russia completed four consecutive months as the main foreign supplier of diesel oil to Brazil, a position historically occupied by the United States. In that month, the volume of fuel imported from the country of Vladimir Putin corresponded to 42.2% of all cargo coming from the international market to meet Brazilian demand.

The participation of North American oil derivatives, in turn, was 30.4% in the same month. Other countries that exported diesel fuel to Brazil in July were Saudi Arabia (14.9%) and the United Arab Emirates (12.4%).

In all, 376.1 million net kilograms of diesel oil were imported from Russia, according to data from the Ministry of Development, Industry, Commerce and Services (MDIC). Considering the first seven months of 2023, Russia was responsible for 35% of all fuel imported by Brazil, against 30.6% from the United States.

In June, Russian diesel accounted for 64.1% of all Brazilian imports, against just 11.4% for US fuel.

With its diesel banned in Europe, Russians offered discounts in other markets

The main reason for the change in the flow of Brazilian imports lies in international geopolitics. Since the beginning of the war in Ukraine, in February 2022, the United States and the European Union have established a series of economic sanctions against Moscow.

In December, the European Union banned virtually all imports of oil from Russia, its main supplier until then, but continued to buy fuel from the country. Since February of this year, the bloc’s countries have also been prohibited from importing oil derivatives.

Without their main consumer market, Russian producers began to seek new markets and, for that, offer discounts. The United States, on the other hand, shifted part of its shipments to Europe, which reduced the supply of US fuel.

To give you an idea, in January, 54.2% of the diesel imported by Brazil originated in the United States, while Russia did not send a single shipment of fuel to Brazilian territory.

In February, North American participation in imports of the product by Brazil fell to 30.2%, while Russian diesel already represented 13.9% of all fuel purchased from abroad. The Russian share rose to 18.3% in March and to 56.4% in April, dropping to 47.6% in May before reaching 64.1% in June and falling again to 42.2% in July.

“The main reason is the price, there’s nothing much beyond that”, says Amance Boutin, fuel analyst at Argus, a company specializing in reports and analysis for the fuel, agriculture, fertilizers, natural gas and electricity markets.

Although it is a petroleum derivative, a product of crude oil refining, diesel is considered a commodity, which, in order to be marketed in Brazil, must meet the standards established by the National Petroleum and Natural Gas Agency (ANP). “All products are compared to each other, which means that the difference is basically in delivery times and mainly in price”, explains Boutin.

Although Brazil has not imposed restrictions on products from Russia, the sanctions imposed by the United States and the European Union made it difficult for Brazilian companies with foreign capital to import Russian diesel at first.

Petrobras, for example, because it is listed on the New York Stock Exchange, has an important participation of North American investors, in addition to exporting oil to the United States. Raízen, another major importer of oil derivatives, is a joint venture with Shell, which has Dutch origins and is currently headquartered in the United Kingdom.

Negotiations to bring Russian diesel to Brazil began in the Bolsonaro government

Negotiations to bring fuel from Russia to Brazil began in 2022, during the government of former President Jair Bolsonaro (PL), but the first imports were made by smaller companies and mainly destined for regional distributors.

Based on market sources, S&P Global Commodity Insights recently reported, however, that now major Brazilian players, “including at least one major Brazilian fuel company”, have also started buying Russian barrels at a discount.

Today, the Brazilian refining park has the capacity to refine approximately 80% of the diesel that is consumed domestically, while the remaining 20% ​​must be imported.

The value of a cubic meter of S10 diesel produced nationally at the Presidente Getúlio Vargas refinery (Repar), owned by Petrobras, in Araucária (PR), was R$ 3,044 at the end of July, according to a survey by Argus. Fuel from Russia entered the port of Paranaguá (PR) at R$3,240, while fuel from other countries had an average price of R$3,350.

Price difference started to fall

Boutin sees a downward trend in the difference between Russian oil and US oil, which should cause Russia’s share in the Brazilian diesel market to decrease in the coming months. “The American product will lower the price, and the Russian will start to see that Brazilian producers have high margins and will start to rise little by little”, he explains.

In addition, he points out, the discount offered on the Russian product should attract other large buyers in countries that do not impose sanctions on Russia, as is the case with Turkey, India and China, reducing the supply globally.

Another factor that could affect imports – and not just from Russia – is the increase in oil prices on the international market. As Petrobras is not transferring the increase in the barrel to domestic diesel and gasoline prices, competing importing companies, unable to compete, have reduced or even interrupted orders from abroad.

Diesel oil imports by country (January to July 2023)

Source: Ministry of Development, Industry, Commerce and Services

January

February

March

April

May

June

July