Why is Petrobras' fuel pricing policy raising concerns again?

The fuel pricing policy of Brazil’s federal oil firm Petrobras is again causing alarm among investors.

Concerns relate to significant price discrepancies between diesel and gasoline compared with import parity levels. According to fuel importers association Abicom, the price gap stands at 16% for diesel and 8% for gasoline, both of which are below import parity.

Despite being an oil exporter, Brazil lacks the refining capacity to meet domestic demand for refined products, particularly diesel.

Under the administrations of Michel Temer (2016-18) and Jair Bolsonaro (2019-22), Petrobras – dominant in the domestic refining sector – adopted a policy based on import parity pricing (PPI). With Luiz Inácio Lula da Silva’s return to the presidency in 2023, the company shifted to a policy aimed at reducing consumers' exposure to the volatility of international oil prices and exchange rates.

Not having adjusted diesel prices at its refineries in 2024, Petrobras is expected to announce a fuel price hike in the coming days.

In addition to the international price of crude oil, which has remained above US$70/b, the increase reflects the significant depreciation of the Brazilian real against the US-dollar over the past year. It also accounts for the rise in the ICMS (state tax on goods and services) on fuels, which will take effect on February 1. This includes gasoline, which only saw one price adjustment last year.

According to Sidney Lima, an analyst at Ouro Preto Investimentos, Petrobras’ current approach significantly raises investor uncertainty by straying from principles like predictability and clear pricing policies that align with market parameters.

"Petrobras not only amplifies the volatility of its stock but also undermines its corporate governance perception, which could negatively affect its market value in the long term," Lima told BNamericas.

He believes Petrobras should reconsider its pricing strategy and seek a policy that “more adequately” balances domestic economic needs with global market demand. "Such an adjustment would be crucial to restore investor confidence and position the company for long-term sustainable success."

Jonas Carvalho, CEO of Hike Capital, is concerned that the current pricing policy signals potential state intervention.

"The lack of clarity in the new policy increases the risk of discretionary decisions aimed at containing inflation, which could compromise the company's profitability and deter investment in the sector," Carvalho told BNamericas.

“The uncertainty surrounding governance and political influence raises the perception of risk among investors, impacting stock value and reducing Petrobras’ attractiveness in the market," Carvalho added.

Adhemar Mineiro, a researcher at sector association Ineep, defended Petrobras’ policy, as prices for final consumers are determined freely. “Petrobras is pursuing a policy of nationalizing prices given its local refining capacity. There is no price fixing,” he told BNamericas.  

He highlighted that pricing always involves uncertainties, adding that with the PPI, prices in Brazil have fluctuated according to international prices.

“So it depends which actors you want to be impacted by the uncertainties: the importers or the entire production and consumption chain that ends up being affected by the fluctuations,” Mineiro added. 

Expansion

In order to reduce dependence on fuel imports, Petrobras resumed projects to expand its refining park, such as the construction of a second refining train at the RNEST (Abreu e Lima) refinery in Pernambuco state with an estimated investment of 7bn reais (US$1.2bn).

At the Boaventura energy complex in Rio de Janeiro, 13bn reais will be invested in plants producing lubricants, diesel and aviation kerosene. 

Another 7bn reais has been earmarked for improvements at the Duque de Caxias refinery (Reduc), also in Rio de Janeiro state. Meanwhile, 3.2bn reais will be invested at the Presidente Getúlio Vargas refinery (Repar) in Paraná.