Figure 1: Petrobras Distribution Prices, International oil Prices and Gasoline CPI (Aug-2019 = 100)
Source: Petrobras, IBGE and Datastream
Petrobras has recently announced a significant change to its fuel pricing policy. Since 2016, the state-owned company had been following a practice of aligning its distribution prices with international rates, which were influenced mainly by two factors: exchange rates and global oil prices. However, the new policy introduces an additional consideration of internal costs alongside international prices. Presently, approximately 50% of Brazil's fuel is produced domestically, while the remaining 50% is imported. Although Brazil is self-sufficient in oil production, its refinery capacity is limited.
This new pricing measure, which lacks transparency, raises concerns as it grants Petrobras the freedom to implement any policy it deems fit. Petrobras has provided limited information regarding refinery costs, making it challenging to calculate the variance between international prices and internal costs. In the past, whenever Petrobras' prices fell below international rates, the difference had to be covered by someone—either the government through subsidies or Petrobras itself, incurring losses that were offset by its balance.
The specific direction Petrobras intends to pursue with its fuel pricing policy remains uncertain. Alongside the introduction of the new pricing formula, Petrobras has announced a reduction in distribution prices. However, this reduction aligns with the decrease in international oil prices when converted to Brazilian Real (BRL), influenced by recent currency appreciation and a slight decline in Brent prices. One possibility is that the new formula was designed in response to political pressure from President Lula, and Petrobras chose the opportune moment to announce it alongside a reduction in fuel prices that would not directly harm the company. It is worth noting that Petrobras has also paid its investors the highest dividends, reflecting the company's profitable performance in 2022, driven by higher international oil prices.
Overall, the introduction of the new pricing formula raises more doubts than certainties. It is conceivable that the fuel pricing policies will remain broadly unchanged but rebranded. However, if the government intends to exploit Petrobras for political purposes and pursue an unsustainable fuel pricing policy, the door is now open for such actions. In such a scenario, it is possible that Petrobras' financial resources may be employed to sustain lower fuel prices, a move that market players would likely disapprove of.