Will gasoline go up in Brazil with the war in Ukraine?

In a week in which the barrel of oil hit US$ 139 (R$ 707, at the current price), the highest price level in 14 years, and the United States announced a boycott of oil imports from Russia, consumers inevitably Question: Will the price of gasoline go up in Brazil?

Normally, the answer would be straight and straight: yes, because Petrobras readjusts its prices in the domestic market taking into account the price of a barrel on the international market and the exchange rate variation, since oil is priced globally in dollars.

However, at the present time, there is great uncertainty about what will happen to the prices of gasoline, diesel and cooking gas in Brazil.

This is because President Jair Bolsonaro (PL), targeting the campaign for reelection, has already indicated that he should not let the Brazilian state-owned company fully pass on the rise in oil on the international market to domestic prices.

The government is analyzing two possible ways to limit the rise in fuel prices: freezing prices for up to six months, leaving the bill to Petrobras, which would have its margins compressed by selling fuels cheaper than import costs.

This measure, however, would need to be approved by the company’s board of directors, where there may be resistance from minority shareholders, who would be harmed by an erosion of the oil company’s profits.

A second way would be for the National Treasury to subsidize fuels, using the funds from the dividends paid by Petrobras to the Union. In February, the company announced the distribution of BRL 101.4 billion in dividends referring to the 2021 result – the largest in its history –, with about 28% of this amount going to the Federal Government.

Neither path pleases the market. The price freeze would penalize the value of Petrobras and minority shareholders. The subsidy would have a negative impact on the balance of public accounts.

“A barrel that approaches US$ 150 (R$ 763) is a great challenge for Petrobras, because, for it, oil is part of the costs. consumer prices, the lower its margins become”, observes Alê Delara, managing partner of the commodity brokerage Pine.

“This is what is happening today with the lag close to 40% in fuel prices at import parity. So the government is creating some mechanism to subsidize prices so that this inflation does not reach the consumer.”

The price parity

On Monday (7/3), Bolsonaro criticized Petrobras’ pricing policy.

“There is wrong legislation, made back then, that you have parity with international prices. What is taken from oil takes into account the price outside Brazil, this cannot continue to happen. in the market,” Bolsonaro said in an interview. “Laws made in the past are the big problem. We will look for a solution in a very responsible way”, he added.

The president was wrong to say that the problem is “wrong legislation”, since Petrobras’ pricing policy is defined by the company’s management, not by law.

Petrobras adopted the so-called import parity price (PPI) in 2016, during the government of Michel Temer. The model was adopted after the company spent years practicing controlled prices, especially under Dilma Rousseff (PT). Price control was a way for the government to mitigate inflation, but it caused great damage to the oil company.

In 2018, during the truckers’ strike, the parity model began to be questioned a lot. But, on that occasion, the government opted to maintain the parity policy, temporarily subsidizing diesel through a disbursement of R$ 4.8 billion.

Now, the parity model is at the center of the electoral debate with candidates like Lula (PT) and Ciro Gomes (PDT) promising to change Petrobras’ pricing policy and Bolsonaro wanting to intervene in prices with an eye on reelection.

The fact that fuels have already risen in price almost 50% in 2021 alone weighs in the debate. So a readjust now, due to the rise in oil in the midst of the Ukrainian war, takes a consumer already very hurt by the recent rise in inflation.

Debate in Congress

Another unknown factor for what will become of fuel prices ahead is a series of laws being debated in Congress.

There are at least three: PLP 11/2020, which determines a unified rate for ICMS on fuels; PL 1,472/2021, which creates an account to finance price stabilization; and PEC 1/2022, presented by Senator Carlos Fávaro (PSD-MT), which proposes a reduction in fuel taxes.

According to the newspaper Valor Econômico, the removal of federal taxes on diesel, provided for in PLP 11/2020, would cost the public coffers BRL 18 billion, and would result in a drop of BRL 0.50 per liter in the price. of diesel at the pump.

The change in ICMS collection, with the exchange of a percentage on the price for a fixed amount per liter, could have an impact in the range of R$ 1 to R$ 2, according to the same newspaper.

In summary: it is still not possible to know what will happen to fuel prices from now on, since the pressure is on the rise, but political decisions can limit this increase.

Even in the face of this unknown, economists are already betting on higher inflation this year.

This Tuesday (3/8), XP Investimentos raised its forecast for inflation in Brazil from 5.2% to 6.2% this year, and from 3.25% to 3.80% next year, due to the more unstable commodity price scenario.

The French bank BNP Paribas raised its forecast for the IPCA (National Broad Consumer Price Index) in 2022 from 6% to 7%, starting to forecast a hike in the basic interest rate up to 13.25%, compared to a previous estimate of 12.25%.

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