Russian diesel flows to Brazil remain strong, while Petrobras slashes prices

Russian diesel continues to flow to Brazil and volumes are expected to remain steadily strong in early 2024, recent data and market sources have indicated.

Market sources have said Brazilian importers have contracts for Russian diesel barrels already in place for delivery in January.

"One hundred percent of my imports are Russian and 90% of total imports in Brazil are Russian," one market source said.

Brazil imported 10.5 million barrels of diesel product in November, and so far has imported 2.2 million barrels in December, S&P Global Commodities at Sea data shows. Russia was the primary country of origin for diesel imports into Brazil in November, providing 7.7 million barrels of the month's total, and so far in December, providing 1.6 million barrels.

The price of Russian diesel imports depends largely on the delivery window as well as on payment terms, market sources said, with steeper discounts available for those market players who are paying more promptly.

Some Russian cargoes make the journey to Brazil without having a buyer already in place, Brazilian traders have indicated, adding that the cargoes usually stay afloat for five to seven days until someone buys them. The cargoes are arriving to the ports of Itaqui and Suape, the market sources added.

While they were initially hesitant about purchasing Russian refined products in early 2023, the largest importers in Brazil are now doing so.

Importers found themselves forced to rely on cheaper Russian imports to remain competitive before Petrobras' recent domestic price adjustment.

The adjustment, which came into effect on Dec. 8, brought down wholesale diesel prices by another 3.8% to about $1.2057/l, Platts reported. So far in 2023, Petrobras has slashed wholesale diesel prices 15.8%.

Market sources said that the reason behind the most recent adjustment is due to a wide arbitrage to Brazil.

"The arbitrage in Brazil was open more than 50 cents/gal," another market source said. "Petrobras made a catch up."

Market sources said that the price adjustment has made Petrobras product less expensive and closer to the price of US Gulf Coast-origin diesel.

"USGC is cheaper than Petrobras now," a market source said.

Market sources indicate that despite the price adjustment from Petrobras, it is still cheaper to trade Russian barrels. They said that they will prioritize the Petrobras barrel and then use Russian barrels to supply what is lacking.

One market source said that companies will continue to take advantage of the low Petrobras price while it lasts.

"Companies see value on taking Petrobras barrels," the same source said. "Companies are taking as much as Petrobras supplies. I don't see anyone that can be sourced by Petrobras leaving barrels behind."

Market players in Brazil also are anticipating Petrobras will lower prices yet again in January.

"Arbitrage is still there, especially on diesel, but there is a tax game for January," a second market source said. "So maybe we will face another drop on prices for January."