Arbitrage further boosts Brazil diesel imports, expected to last few more weeks

More importers have been taking advantage of the open arbitrage window for diesel in Brazil, as a persistent gap between local and import parity prices is expected to last for at least a few more weeks, market participants said on Sept. 20.

According to the daily report of the Association of Brazilian Fuel Importers, or Abicom, released on Sept. 20, the average domestic diesel price in the country was 3% (Real 0.11/liter) higher than the import parity level. Although this was lower than the previous week, when it stood at 6%, it represented a positive arbitrage to bring in cargoes from abroad.

"With Petrobras' price above import parity, companies are taking advantage of this market opportunity. Perhaps this will be maintained for a few more weeks," Sergio Araujo, head of Abicom, said on Sept. 18.

Abicom observed import prices lagging behind domestic levels for at least 12 consecutive workdays, noting that the window had been open for 16 days as of Sept. 20.

Platts, part of S&P Global Commodity Insights, last assessed the import parity price for ultra-low sulphur diesel at the port of Itaqui, in the northeast of Brazil, at Real 3,238.99/cu m on Sept. 19, up Real 3,203.84 from the previous day but dropping from Real 4,175.29/cu m recorded on July 2.

Not only was the lower import price attractive to importers, but demand for material from the US Gulf Coast has also been stronger in recent months, supported by the narrower price spread over Russia-origin fuel.

"This arbitrage [leading to] a higher volume of diesel [coming] from the U.S. is expected to last only through September [and a few more days]. We anticipate that by mid-October Russia will be the main source again," a trader said on Sept. 19.

S&P Global Commodities at Sea(opens in a new tab) data released on Sept. 20 showed that 11.12 million barrels of gasoil/diesel were scheduled to be discharged at Brazilian ports in September, marking a two-year high. This figure is also 3.57 million barrels higher than the total imported by the country in September 2023.

While full-month volumes from Russia were expected to reach 5.21 million barrels in September -- still leading but down from 5.58 million barrels in August -- imports from the USGC were set to hit 4.19 million barrels, up from 3.13 million barrels the previous month.

For October this year, 3.73 million barrels were already scheduled to unload at Brazilian ports. According to CAS data, this includes 1.87 million barrels of Russian diesel and 1.54 million barrels from the USGC.

According to the trader source, Russian ULSD imports would usually be considered more competitive again when the discount to the US-origin product is around 8 cents/gal.

Platts assessed the spread between US- and all-origin ULSD in South Brazil at 6.24 cents/gal on Sept. 19, slightly higher than the previous day's 6.14 cents/gal but significantly lower than the 2024 high of 22.19 cents/gal recorded on April 22.

Strong Brazilian demand driven by the corn and soybean seasons prompted some buyers to seek additional imported diesel cargoes. Meanwhile, domestic consumption in Russia, driven by the wheat season, is reducing gasoil availability for international markets and narrowing the spread against USGC diesel in September.

As more participants seek US-origin cargoes and due to a stronger demand from Europe, USGC transatlantic trade has been reaching record highs over the US summer. This trend is supported by more favorable freight rates and increasing refinery output.