Gasoline price: what defines the value in Brazil

The price of gasoline throughout 2021 underwent readjustments of more than 70% in refineries and weighed on the pockets of Brazilians. The rise in the price of a barrel of oil and the price of the dollar are some of the factors that directly affect the rise in prices.

understand how the gasoline price is defined, the effects of constant fuel adjustments on inflation and how the instability in the political and economic scenario affects this scenario.

What sets the price of gasoline?

From the moment the fuel leaves the refineries until it reaches the consumer, five components form the final price of fuels:

Next, understand what each one represents in the formation of fuel prices:​

See in detail:

1 – Petrobras realization

The Petrobras Realization refers to the amount paid by the distributors to the oil company for its service in the refineries. This amount includes Petrobras’ production costs and profits.

2 – Distribution and resale

The distribution and resale portion pays for the storage and transport of fuel, in addition to the services provided by the gas stations. This item varies according to the cost structures of each company in the chain and specific characteristics of each market, such as the level of competition or distance from the product delivery poles.

3 – Anhydrous ethanol and biodiesel

anhydrous ethanol It is a compound formed almost 100% by alcohol, added to gasoline according to specifications provided by law. The product helps with combustion and contributes to reducing the emission of carbon monoxide, a polluting gas that results from the burning of gasoline.

THE biodiesel, fuel added to diesel and also provided for by law, is an alternative for cars with a diesel engine. It is derived from vegetable oils and fats, which means it is a renewable energy source. Its pollution index is also lower than that of petroleum-derived diesel.

According to the rule in force, a 2006 ordinance issued by the ANP (National Agency for Petroleum, Natural Gas and Biofuels), gasoline sold at gas stations must contain 73% gasoline and 27% anhydrous ethanol. Diesel is expected to contain 90% diesel and 10% biodiesel by 2022.

4 – ICMS: what is it and why does it vary?

ICMS (Imposto sobre Circulação de Mercadorias e Serviços) is a state tax that is levied on the final sale of products, with rates defined by the states.

In the case of fuels, the rate is levied on a reference price, called PMPF (Weighted Average Price to Final Consumer), defined by state governments every 15 days, based on research at gas stations.

In gasoline, the rate varies between 25%, as in São Paulo, and 34%, in the case of Rio de Janeiro. For diesel, the rate varies between 12% and 25%.

5 – Cide, PIS/Pasep and Cofins

The Cide (Contribution for Intervention in the Economic Domain) is a federal tax that refers to the activities of importing and trading oil and its derivatives, natural gas and its derivatives, and fuel ethyl alcohol.

PIS/Pasep are federal taxes levied on public bodies and companies to pay benefits such as salary bonuses and unemployment insurance.

Cofins (Contribution for the Financing of Social Security) is another federal tax levied on companies. It is calculated from the institutions’ gross income and pays for basic spheres of Brazilian social security, such as investments in health, Social Security and national social assistance programs.

Cide and PIS/Cofins are fixed amounts, defined by the federal government. A liter of gasoline A, which leaves the refinery, pays BRL 0.10 in Cide and BRL 0.7921 in PIS/Cofins. The diesel Cide is zeroed. PIS Cofins is R$ 0.3525 per liter of diesel A, before blending with biodiesel.

Why does the price of gasoline increase?

The price of fuels has followed the international market more closely since 2016, when the import parity policy was implemented, in which the import parity price (PPI) is defined.

The PPI is a reference value, calculated based on the purchase price of the fuel (in the case of Brazil, usually the price negotiated in Houston, USA), plus logistical costs up to the delivery hub of the derivative — which includes factors such as sea freight, port fees and road transport — and the margins to remunerate risks inherent to the operation.

The value is also influenced by the dollar exchange rate.

The reference for international quotations is Brent oil, traded in London. In 2021, it surpassed the peak reached in 2018, the year in which the truck drivers strike took place.

The rise reflected the recovery of the global economy after the periods of isolation at the beginning of the pandemic. The increased activity caused the demand to exceed the supply of oil, increasing the price of the product.

In Brazil, the dollar, the currency in which oil is quoted on the international market, continued to appreciate in relation to the real, which also contributed to increasing the value in reais of the imported product during the year.

This increased the price charged by the service stations and, as a consequence, also increased the ICMS portion of this amount, since the tax is calculated based on the sales value of the fuel.

How does the political and economic scenario affect the price?

The effects of periods of political instability on the exchange rate help to put pressure on domestic fuel prices, as they tend to make the value in reais more expensive. This has been common in pre-election periods, for example, when the dollar tends to react to uncertainties about the change of government.

In 2002, the then current candidate for the Presidency of the Republic, José Serra (PSDB), even publicly asked Petrobras to stop readjusting the price of cooking gas, as the frequent increases had a negative impact on his campaign.

That year, the American currency rose more than 50% against the real. With Petrobras’ frequent transfers, the price of a 13-kilogram gas cylinder more than doubled, rising 133% between January and December. Gasoline rose 63% in the same period.

In 2014, also faced with a strong devaluation of the currency, the government Dilma Rousseff (PT) decided to hold prices, generating a clash with the direction of Petrobras. In statements given to the Public Ministry in 2015, the former president of the state-owned company, Graça Foster, told details of the arm wrestling.

She went so far as to say that the company was “on the edge” due to the impacts of the damming on its indebtedness indicators, but that the then Minister of Finance, Guido Mantega, had the final word.

Shortly after Dilma’s victory, with oil falling, the government authorized adjustments of 3% on gasoline and 5% on diesel and recommended to the board “to spend time with prices above par in order to make up for the lags of the past “.

Recently, a combination of internal and external reasons contributed to the rise of the dollar against the real. Among them are uncertainty about the future of the pandemic and the country’s political instability.

Jair Bolsonaro (PL) began his term with a dollar of around R$3.80, but the US currency price surpassed the barrier of R$5 at the beginning of the pandemic and has since remained above this level, becoming a additional pressure on fuel prices.

Gasoline price in the world

As oil is a commodity, that is, its prices are international, a rise in the cost of oil will be felt in all countries.

This international price is influenced by the decisions of OPEC (Organization of Petroleum Exporting Countries), a group that in 2022 includes 12 producing nations: Angola, Algeria, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Iran, Iraq, Kuwait, Qatar, Ecuador and Venezuela.

This group acts as a cartel, that is, they jointly make decisions on exploration, production and export/import of oil that affect the cost of the product. For example, if OPEC decides to reduce oil production, but demand remains at the same level, the price increases.

Brazil, despite being 8th in the ranking of the largest oil reserves in the world, is not a member of OPEC. In 2019, Jair Bolsonaro mentioned that he would like his country to be part of the organization, but that he would likely require Brazil to limit its oil production.

In the pandemic, for example, the organization works so that, regardless of crises, prices are practiced in a way that does not harm the organization’s member countries.

Although the price of oil is international and affects all countries, in each one the value of fuel will depend on the internal policy of readjustments and the tax policy of each nation.

The price of gasoline over the years

The price of gasoline in 2021 reached the highest values ​​since it began to be recorded monthly, in 2003, by the ANP (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis).

The average of almost R$ 7.00 is the highest in 18 years in the historical series, both in terms of the final price paid by the consumer and the price adjusted for inflation. measured by IPCA (National Broad Consumer Price Index), the level of inflation reached 10.67% in 12 months in the year 2021.

What should the actual price of gasoline be?

The question is impossible to answer in a general way, precisely because the price depends on all the above conditions.

In addition, the price of gasoline depends on factors that cannot be controlled by the national fuel market — such as the dollar exchange rate or the international price of oil.