Will gasoline get cheaper? 5 questions about Petrobras’ price policy change – 05/17/2023 – Market

Fuel prices should vary less with Petrobras’ new pricing policy, but that doesn’t mean it will necessarily get cheaper, say analysts interviewed by BBC News Brasil.

The state-owned company announced this Tuesday (16) the change in the rules, which since 2016 closely followed fluctuations in the value of oil on the international market.

This, on average, led to higher prices for products such as gasoline, diesel and cooking gas in Brazil.

The new policy will take into account some domestic factors, but will continue to follow international parameters.

The change was a campaign promise by President Luiz Inácio Lula da Silva (PT) to “Brazilize” the state-owned company’s prices.

“We are not removing the effect of the international reference, but we are putting in a filter, a possibility for the company Petrobras to be able to do, with its refining capacity, with Brazilian costs, at least in large part, to cushion these effects”, he said. the president of the state company, Jean Paul Prates.

The market reacted well to the change, and Petrobras shares closed with a rise of more than 2%, against the Ibovespa, the main index of the Stock Exchange, which fell 0.77%.

Along with the new pricing policy, a reduction was also announced in the amount that the state-owned company charges for the sale of gasoline, diesel oil and cooking gas to distributors, starting on Wednesday (17). This decrease could have been adopted even in the previous price policy, in force since 2016, as it reflects the recent international cheapening of oil.

The cut for distributors tends to reach the Brazilian pocket in the next few days, but the intensity of the transfer to the final consumer may vary in different regions of the country.

Understand in five points the announced changes and their impacts.

1) What will be the price reduction?

At first, Petrobras announced a reduction of BRL 0.40 per liter of gasoline (-12.6%), of BRL 0.44 per liter of diesel (-12.8%) and of BRL 8.97 per cylinder of 13 kg of gas (-21.3%).

This drop reflects the devaluation of oil internationally and the appreciation of the real in recent weeks.

The president of Petrobras estimated the impact for the final consumer on the assumption that other factors that influence prices remain constant, such as the cost of distribution and the profit margin.

“We are trying to put a possible impact on the pump for the final consumer. If all other installments remain fixed, we expect the price of C gasoline (common) to go from R$ 5.49 a liter, on average, to R$ 5 ,20. The diesel S10, from R$5.87 to R$5.18”, Prates told journalists.

The president also estimated that the gas cylinder will be below R$ 100 for the first time since October 2021, with an average price of R$ 99.87.

2) How can I check the price reduction?

The transfer of cuts to the consumer, however, is not mandatory, according to the National Petroleum Agency (ANP).

“The prices of fuel and LPG (cooking gas) have been free in Brazil, by law, since 2002. They are set by the market. There are no maximum, minimum, or fixed prices, nor the need for authorization from the ANP, or any public agency. for prices to be readjusted to the consumer”, explained the agency to the report.

Prices may also vary in each region of the country, according to local characteristics, such as distribution costs and how competitive the fuel market is in the region.

In the case of gasoline type C (common), whose composition contains a little ethanol, its final price also takes into account the variation of this product.

The consumer who wants to have a parameter of the values ​​practiced in his State can follow the monitoring of the ANP. The agency publishes weekly the average prices practiced in the country for gasoline, diesel, cooking gas and CNG.

3) Why is Petrobras’ pricing policy the subject of dispute?

Petrobras adopted, under the Michel Temer government, the policy of import parity prices (PPI): the values ​​charged from distributors by Petrobras were strongly influenced by import costs, which reflected the international price of oil and the Brazilian exchange rate.

As on average, since 2016, the real has devalued and oil has become more expensive globally, prices charged by Petrobras have ended up rising sharply in recent years, even leading to a truck drivers’ strike in 2018 that paralyzed highways and caused an economic downturn .

Although it is a major producer and exporter of crude oil, Petrobras imports most of the fuel it resells in the country.

Defenders of the alignment of the state-owned company’s prices with international quotations say that this maximizes the company’s profits, favoring more investments and the return of resources to public coffers through taxes and dividends paid by the state-owned company.

They also allege that the price controls practiced by the PT governments, added to deviations due to corruption and wrong decisions (such as poorly managed investments in refineries), would have “broke” Petrobras.

Another problem with selling fuel at prices lower than import prices, critics point out, is that this creates unfair competition with other distributors that import fuel, which could lead to shortages in the country.

Critics of the alignment of prices to the foreign market claim that it serves the interests of the financial market (minority shareholders of the company) to the detriment of the pockets of most Brazilians.

They also argue that the amounts charged from Petrobras must be in line with the state-owned company’s domestic production costs, which are lower than the international value of oil.

4) What has changed in the pricing policy?

The state-owned company announced that the new pricing policy for diesel and gasoline will take into account two factors: the customer’s alternative cost and the marginal value for Petrobras.

According to the company’s statement, “the customer’s alternative cost includes the main supply alternatives, whether suppliers of the same products or substitute products”.

That is, when defining its price, the state-owned company will take into account the value practiced in the market by competitors, whether for gasoline and diesel, or for alternative fuels, such as ethanol.

“The marginal value for Petrobras is based on the opportunity cost given the various alternatives for the company, among them, production, import and export of the said product and/or the oils used in refining”, says the statement.

The text indicates that the company will evaluate the market alternatives it has to define its prices – that is, what is the import value that makes sense for the company, considering the costs and prices practiced in other areas of the state-owned company, such as production and export.

Petrobras said, however, that it will continue to follow international parameters.

“The commercial strategy is premised on competitive prices per point of sale, in balance with the national and international markets, taking into account the best alternative accessible to customers”, adds the statement.

“The readjustments will continue to be made without defined periodicity, avoiding the transfer to the internal prices of the conjunctural volatility of the international quotations and of the exchange rate”, he also informed.

5) What will be the impact of the new policy on prices?

For a former director of the ANP interviewed by the report, the criteria announced “are vague” and, in practice, do not make it clear what the trend for prices will be, after the cuts announced now.

Although President Lula’s speech indicates a desire to keep prices lower, this former director notes that there is a limit to how much the government can handle a possible pass-through of higher costs on the foreign market, under the risk of domestic shortages.

The XP Investimentos brokerage, in turn, evaluated in a report that “although the information provided by Petrobras has been a little opaque, we see that, in fact, little will change (in the pricing policy)”.

For the brokerage analysts, this is signaled in some decisions highlighted in the state-owned company’s statement, such as the commercial pricing strategy based on “marginal value for Petrobras” and the commitment that this strategy will follow “the Price Formation Guideline in Internal Market (Guideline) approved by the Board of Directors on July 27, 2022”.

This guideline provides that “the Executive Board must preserve and prioritize the Company’s results, seeking to maximize its value creation” – that is, that the company must make decisions aimed at profit.

“In the end, we think that the Petrobras refinery price may drop a few cents at some delivery points, but it will not change in a material way”, says the XP report, signed by Andre Vidal (head of the Oil, Gas and Petrochemicals area ) and Helena Kelm (Oil, Gas and Basic Materials analyst).

This text was originally published here.