Brazil's Petrobras to slash diesel prices 4.5% effective March 23

Brazilian state-owned oil company Petrobras slashed diesel prices at the refinery gate by 4.5%, effective March 23, in the latest move to reduce fuel prices in Latin America's largest economy, the company said March 22.

Wholesale diesel prices will fall to 72.87 cents/liter, down from 76.28 cents/l, Petrobras said in a statement. Petrobras last adjusted diesel prices on Feb. 28, when prices for Brazil's top refined product in terms of consumption were reduced 2.3%.

Gasoline prices were left unchanged.

"The main objective of this reduction is to keep Petrobras' prices competitive against our clients' primary supply alternatives as well as maintain the market share necessary to optimize refining assets," Petrobras said.

The latest price cut could send Brazil's diesel prices to below import parity prices, according to data from the Brazilian Association of Fuel Importers, or Abicom. Diesel traded at a 2% premium to import parity prices as of March 22, while gasoline prices were estimated at parity to import parity prices, Abicom said.

Brazil's Import Parity ultra-low sulfur diesel prices have been trending lower since October 2022. Platts, part of S&P Global Commodity Insights, assessed the Santos ULSD Import Parity Price at $116/b on March 21, down from $179.19/b Oct. 17, 2022.

Petrobras' latest reduction to diesel prices continued the downward trend seen since mid-2022, when the company embarked on a series of price cuts under the leadership of then-CEO Caio Paes de Andrade. In the second half of 2022, price cuts to both diesel and gasoline helped revert the spike in prices seen earlier in the year after Russia invaded Ukraine in February 2022.

In addition to the price cuts, Brazil extended a federal tax break on diesel sales until Dec. 31, 2023. The tax holiday was originally scheduled to end on Dec. 31, 2022. Federal taxes on gasoline and biofuel competitor hydrous ethanol, however, were partially restored on March 1.

The trend toward lower fuel prices followed promises made by President Luiz Inacio Lula da Silva, or Lula, during the 2022 presidential campaign. Lula, who was inaugurated for his third term in January, pledged to end Petrobras' import-parity fuel pricing policy and boost domestic refining activity in an effort to lower prices for consumers.

Since 2016, Petrobras has kept domestic diesel and gasoline prices at parity with international imports. The policy was aimed at ending government interference in the company's pricing decisions.

The import-parity policy also kept import markets active, industry officials said. Brazil has historically imported about 25% of its diesel consumption and 15% of its gasoline demand to make up for the country's domestic refining shortfall.

Lula appointed former Rio Grande do Norte Senator Jean Paul Prates as Petrobras CEO in January, with a mandate to adopt a fresh pricing policy. In addition, the government has submitted a list of 11 new board members for eight vacant seats in a near-complete overhaul of Petrobras' board of directors.

The board is expected to be seated after a shareholders' meeting in April.

Refining in focus

Brazil has also moved to boost domestic refining in recent weeks, including a 90-day moratorium on the sale of Petrobras-operated refineries. Lula and Prates want to halt the refinery sales, which were ordered as part of a 2019 antitrust agreement that ended Petrobras' monopoly in the country's downstream sector.

The National Energy Policy Council, or CNPE, also called for studies on refining Brazil's share of production sharing crude at domestic refineries on March 17. The refined products would then be sold into the domestic market at reduced prices, according to government officials.

Under Brazil's production sharing regime, subsalt management company Pre-Sal Petroleo SA, or PPSA, can sign contracts to process production sharing crude with refiners. The government's share of profit oil is currently sold under long-term contracts established via an auction process.

PPSA was granted 180 days to carry out the study and report back to the CNPE.