Petrobras of Brazil Raises Fuel Prices Following Sudden Global Surge

16 Aug, 2023

Petrobras of Brazil Raises Fuel Prices Following Sudden Global Surge

Brazil's state-owned oil company, Petrobras (PETR4.SA), has announced a forthcoming increase in gasoline and diesel prices at its refineries, citing a recent and sudden surge in global oil prices. The decision has garnered approval from investors, but it is expected to ruffle feathers within the federal government due to its unpopular nature and the renewed concerns about inflation. This announcement comes at a critical time, coinciding with the central bank's initiation of interest rate reductions.

In an official statement, Petrobras communicated its intention to implement a 16.3% rise in average gasoline prices, setting them at 2.93 reais ($0.5893) per liter, effective from Wednesday. Similarly, diesel prices will experience a 25.8% increase, reaching 3.80 reais per liter.

Following the announcement, Petrobras' stock surged by up to 4.9%. The company had been facing pressure to elevate prices after maintaining discounts relative to international rates for the past few weeks. JPMorgan analysts affirmed the positive impact of these price hikes, highlighting the concerns surrounding these discounts and the encouraging indication of ongoing governance effectiveness.

However, this move is poised to trigger an upward adjustment in inflation projections. The central bank anticipates an estimated impact of about 40 basis points between August and September. The previously projected IPCA inflation index of 4.7% for the year is now anticipated to approach 5.0%, slightly exceeding the upper limit of the central bank's target range of 1.75% to 4.75%, according to Rafaela Vitoria, Inter's chief economist.

This marks Petrobras' first price increase since the implementation of a new pricing policy under President Luiz Inacio Lula da Silva's tenure, beginning in January. The policy, adopted in May, shifted away from a more market-oriented approach to enhance price stability. Despite this policy shift, the company asserted that the current circumstances left it no choice but to implement these price adjustments.

Petrobras justified this decision by pointing to the sustained elevation of global oil prices over the past seven weeks. CEO Jean Paul Prates previously noted that the new policy aimed to shield customers from international volatility, while ensuring Petrobras' fuel prices remain above profitability levels.

Petrobras emphasized that its gasoline prices have experienced a year-to-date decline of around 5%, while diesel prices have witnessed a cumulative drop of 15.4% during this period.

Analysts at Santander suggested that the company's refining margins would regain stability following these adjustments, leading them to conclude that further increases would not be immediately necessary.