São Paulo – Brazil could increase fuel imports to avoid a national shortage in November. An alarm was raised in the market after Brazilian oil company Petrobras reported earlier this week that it will not fulfill all gasoline and diesel orders for the next month, which came over 10% and 20%, respectively, over its supply capacity.
Despite being self-sufficient in the oil industry, Brazil is a raw oil exporter and an importer of derivatives like gasoline and diesel. Around 80% of the domestic consumption of derivates is supplied by domestic refineries, nearly all belonging to Petrobras, and the remaining 20% are met with imports. Arab countries like Saudi Arabia, Algeria and Iraq are some of oil product suppliers to Brazil
Petrobras reported earlier this week that the additional derivative demand will be taken up by importing companies. “Imports will grow,” Pedro Rodrigues, director of Brazil’s Center for Infrastructure (CBIE), told ANBA. But there’s a significant market resistant to this option, as fuel prices in other countries are higher than the levels Petrobras offers in Brazil.
A survey by CBIE from October 11 shows that average diesel prices in Brazilian refineries were around BRL 0.67 (USD 0,12) a liter, 17.9% below the price in the Gulf of Mexico, United States. As for gasoline, domestic production were being sold at BRL 0.68 (USD 0.12) a liter, 18.6% below the Gulf of Mexico. Petrobras officially practices price parity but has some time to correct values, hence the gap.
Rodrigues explains that the importer faces some risks when importing fuels if Petrobras starts producing more in its refineries or imports then sells for an average price lower than the importer. CBIE’s director believes the importer is squirrelly about this price interference and losses. Rodrigues says that the higher the price gap, less companies will import.
The director believes this price gap issue can be solved by opening Brazilian refining to other companies, thus relieving the grasp in the sector. That’s what Petrobras has done by selling its refineries, Rodrigues points out. The company has undertaken to sell 50% of its refining capacity, but fuel prices in the domestic market have discouraged buyers.
Expensive oil
High oil and derivative prices have been an ingredient of inflation in most countries, causing concern in governments worldwide. Brent oil is over USD 80 a barrel now, up from approximately USD 40 a barrel a year ago The value more than doubled since the peak of the COVID-19 pandemic, when global consumption slowed, pressing prices down.
“As vaccines roll out, the economies have rebounded very quickly, so oil consumption began to grow again, but the supply failed to rise at the same rate,” Rodrigues explains. When prices lowered to very low levels – in March 2020 Brent oil was at USD 23 a barrel – companies based in the US shale gas regions went bankrupt as the oil prices couldn’t cover manufacturing costs. A supply and demand gap still remains.
Furthermore, CBIE’s director says there’s a concern with environmental, social and corporative governance (ESG) across the globe, which has decreased the investment in the fossil fuel industry. The COVID-19 pandemic caused some societies to care more about the environment. Despite this global demand, though, consumption of fossil fuel products keeps growing.
Translated by Guilherme Miranda
