Lower ethanol supply leads to higher gasoline prices in Brazil

As long as Petrobras maintains gasoline prices at refineries, the lower supply of ethanol will be a major factor contributing to higher prices for the fossil fuel, which has a blend of 27% anhydrous alcohol, experts told Reuters.

The rare situation —since the value of gasoline at the pump is generally more influenced by Petrobras— occurs due to low stocks of biofuel, amid a delayed cane harvest and strong targeting of raw material for the production of sugar, a product export more profitable than ethanol.

In the last week, average gasoline prices at gas stations in Brazil recorded their first rise in more than three months, according to a survey by the regulator ANP, counting on the ethanol factor, in addition to adjustments carried out in October by the important privatized refinery in Bahia (owned by Acelen ) and a movement of resellers in search of margins, according to experts and senior sources close to the government and Petrobras.

“Ethanol has the potential to rise because the anhydrous stocks are low. This harvest is being very peculiar, the industry has lost days of milling in a much greater number than we have observed in previous years”, said the president of the consultancy Datagro, Plínio Nastari, explaining the effects of rains on sugarcane processing and the fuel market.

But he noted that, for Datagro, the gasoline price reference in Brazil is the Petrobras quotation, which has not readjusted fuel prices in its refineries for more than 40 days.

“If any agent, whether Acelen, or an importer that imports and sells gasoline A at different levels from Petrobras’ sales price, it can happen, but it is not a factor that changes the reality of the main reference price,” said Nastari.

Acelen, Brazil’s second-largest refiner in terms of refining capacity, has been following import parity, while Petrobras maintains its quotes ahead of the election that has President Jair Bolsonaro as a candidate.

Ethanol prices are expected to remain on an upward trend in the coming weeks, said StoneX senior oil gas and renewables consultant Smyllei Curcio.

Like Nastari, he also mentioned that ethanol producers who have financial strength are holding sales for January, when federal taxes (PIS/Cofins) on fuels should return, raising the competitiveness of biofuel against gasoline and providing better returns.

“Another reason is that it has rained a lot, which has slowed down the harvest,” said Curcio.

The average price of anhydrous ethanol at the plants in São Paulo, the country’s main producer and consumer market, rose 5.6% in the first two weeks of October, according to data from Cepea/Esalq, while hydrated alcohol (used directly in cars “flex”) increased in the same period by almost 10%.

“What is being designed so far is a smaller volume of crushed sugarcane in the central-south region, 18 mills already with the crushing ended, strong exports, low inventories and, still, perspective of gasoline appreciation due to the behavior of the price of oil in recent weeks,” Cepea (Center for Advanced Studies in Applied Economics) said in a note this week.

The partner-director of the CBIE (Brazilian Center for Infrastructure), Pedro Rodrigues, also cited as a cause of the increase in gasoline an attempt to improve margins by the gas station sector.

“It is worth remembering that the price of gasoline is free in Brazil, that is, it means that gas station owners can price the product according to their needs. The main factor, in my opinion, is that due to successive price drops, some stations have seen the possibility of increasing their margins without harming consumption,” Rodrigues told Reuters.

lag?

According to a report published this Wednesday by Abicom (Brazilian Association of Fuel Importers), the average price of gasoline sold by Petrobras is R$0.18 (5%) below the import price.

The lag in relation to the foreign market has already lasted two weeks, but, in the midst of the presidential elections, there are no expectations that Petrobras will be able to change the values.

A director of the state-owned company said recently that the company is “close to market value” and “takes” longer to pass on the rise in oil to benefit society.

Abicom’s calculations, however, take into account the import account of smaller players.

“It’s not a mistake (by Abicom). They just have another account. They don’t have transport or storage infrastructure, they depend on smaller (more expensive) lots, they have less capital (higher risk). Therefore, the minimum price for them to bring is greater than that of larger players such as large distributors or large trading companies,” said a source close to Petrobras, who attributed ethanol and Acelen the rise at the end of the chain.

But the advance of Brent oil prices on the foreign market, which at the October maximum rose by 10% compared to the end of September, is also impacting the country’s pumps.

“Accelen (owner of the Mataripe Refinery), unlike Petrobras, has followed import parity, so it readjusted its prices in recent weeks. Only in October it added a positive variation of around R$0.40”, he said the partner of Raion Consultoria Eduardo Melo.

Located in the metropolitan region of Salvador (BA), the refinery sold by Petrobras last year has the capacity to process more than 300,000 barrels of oil per day, which corresponds to 14% of Brazil’s total refining capacity and more than half of the supply to the Brazilian Northeast.

This month, the refinery raised the price of gasoline to distributors by 9.3% on October 8 and by 3.3% on October 15. At stations in Bahia, prices rose 10.3% last week, according to the ANP, a rise that also includes the impact of anhydrous ethanol.