Increased diesel availability pressures prices in Brazil's main ports

Higher diesel availability in the Brazilian market has been pressuring prices on an FCA basis in the last quarter of the year at the main ports of the country.

Platts, part of S&P Global Commodity Insights, assessed prices for ultra-low sulfur diesel, or S10-grade in Brazil Dec. 2, at Real 3,502.60/cu m on an FCA basis at the Santos port, a discount of Real 30/cu m against Petrobras' EXA Paulínia reference prices. The current outright is Real 70/cu m lower than the price at the beginning of October, according to market participants' information. In that same two-month period, the NYMEX ULSD futures fell by 4.4%.

Platts launched ultra-low sulfur diesel FCA assessments for the Brazilian market effective Dec. 2, 2024. Since Platts started engaging with the FCA market on Oct. 9, an expected downturn in liquidity with the cooling of agricultural activity was observed in Brazil's four main ports.

In 2024, Brazilian diesel imports are expected to increase by 13% compared with 2023, according to preliminary S&P Global Commodities at Sea(opens in a new tab) data. The total preliminary volume expected is around 9.6 million mt.

Brazil's domestic diesel prices are facing downward pressure due to rising diesel inventories from increased imports. Petrobras released operational results for the third quarter, showing that diesel imports and production exceeded sales from July to September 2024.

The company produced 708,000 b/d of diesel in the first nine months of the year, imported 68,000 b/d, and sold 723,000 b/d in the same period. "Petrobras produced and imported more than demand, but the rest of the market is in the same situation as well. So, besides the higher cost of biodiesel, there is a higher diesel supply overall," a market analyst said, adding that diesel inventories increased by around five days since August 2024.

Despite the higher diesel volume expected to arrive in Brazil in 2024 compared with 2023, importers have started to reduce purchases in the past few months in an attempt to reduce diesel availability. "The lineup is reducing, but the system was already fuller," a source said, explaining the upward diesel stocks trend in Brazil. "The increase is a consequence of the high levels of imports in September and October."

Higher diesel domestic production is another reason for a slowdown in diesel imports. National Petroleum Agency, or ANP, data released on Nov. 26 showed Brazil's refineries significantly boosted diesel output in October, driven by robust demand from the agricultural sector during the peak oilseed and sugarcane harvest seasons.

Liquidity was higher in the Santos (Southeast) and Paranaguá (South) ports, with low liquidity in Itaqui (Northeast) and almost no liquidity in Suape (Northeast). Diesel demand has grown in Brazil in the past eight years, with an overall 1% to 3% positive variation from year to year, according to data from ANP.

In 2024 as of October, diesel sales totaled 56,669.42 cu m, a 3.67% rise compared with the same time last year. Brazilian October diesel imports were characterized by a displacement of US products, averaging just 55,000 b/d in 2024 down from 155,000 b/d in 2022, according to a Nov. 20 report by CAS.

Following that trend, Russian product maintained its lead on Brazilian diesel imports in November, with a total of 2.9 million barrels compared with 2.5 million barrels from the US, according to Nov. 29 CAS data. Still, cargo availability, subdued demand, and heightened competition from US barrels have limited Russian flows to Brazil, with only 86,000 b/d loaded for Russia's second-largest market through Nov. 26—the lowest rate of the year, according to a Nov. 27 report by CAS.

"Refined fuel imports are essential to guarantee supply in Brazil due to a structural deficit in domestic refining," wrote the Brazilian Association of Fuel Importers, or Abicom, in a note to S&P Global Commodity Insights. "In 2025, we expect that Russia maintains its position as a strong exporter to Brazil."

A potential refinery imbalance in the US and Europe, along with added outputs from Nigeria's Dangote refinery might lead to an oversupply in the Atlantic Basin refined market in the short term, said S&P Global Commodity Insights Research and Analysis Director Felipe Perez.

This could make Brazilian domestic diesel less competitive, as the local industry does not follow import parity prices. "All will depend on US and Europe exports. If there is a balance in supply-demand dynamics in Europe and the US, there will be a supply relief to Brazil," he said.

Platts ULSD FCA prices are heavily influenced by international markets as much of the product available on a spot basis comes from abroad. But FCA transactions are also influenced by giant state-controlled Petrobras' posted refinery prices. Currently, the company holds about 75% of the Brazil fuel sales market, according to Petrobras and ANP data. Its refinery prices are used as a basis for FCA transactions in Brazil's main ports, except for Aratu, where Mubadala Capital-owned Acelen's posted refinery prices are used as a basis for FCA.

Recently, Petrobras awarded 100,000 cu m - all volume offered - of ULSD S10 diesel in a sell tender for December delivery. The strong market interest in the tender reflects active demand. The average domestic diesel price was reported 4% lower than the import parity level, potentially impacting future diesel imports, according to fuel importer association Abicom.

Petrobras has not changed its diesel prices since December 2023, and it has flagged no intention to do so in the near future. On the diesel retail sales end, distributors Ipiranga, Raízen and Vibra take up about 55.71% of the market share, according to ANP data updated Nov. 26.