Petrobras Increases Diesel Price, Government Grants Ethanol Subsidy

Petrobras announced that as of September 17, it will increase the price of diesel by R$1.00 per liter, while the federal government issued a decree granting a subsidy of R$0.2519 per liter for hydrous ethanol. Both decisions explain the surge in searches for "Petrobras" and fuel prices.

Why Diesel Prices Are Going Up

The R$1.00 per liter adjustment for diesel will be offset by a new economic subsidy of R$1.00 per liter for road diesel A, according to the state-owned company itself. The measure partially reduces the difference between the price charged by Petrobras and its pricing policy reference, which had increased in recent weeks.

How the Ethanol Subsidy Can Lower Prices at the Pumps

The decree of September 6 provides for a R$0.2519 per liter subsidy for hydrous ethanol, in addition to PIS/Cofins exemption which reduces the cost by R$0.1922 per liter. If producers pass on both benefits, StoneX consultancy estimates a drop of up to 7% in ethanol prices, reaching around R$3.40 per liter in São Paulo.

Combined Impact at the Pumps

While Petrobras' diesel will now cost R$5.42 per liter, it still remains below import parity, but the difference remains significant. Ethanol, in turn, could see a reduction of 1.5% to 7% depending on the subsidy being passed on. Thus, consumers may observe an increase in diesel and a decrease in ethanol simultaneously.

Analysts' Reaction to Petrobras' Adjustment

Itaú BBA analysts point out that the move reduces the gap between the domestic price and import parity, but further adjustment is still needed to fully eliminate the difference. Goldman Sachs indicates that, even with the new R$1.00 subsidy, the domestic diesel price corresponds to US$170 per barrel, a level above what is considered normal.

Outlook for the Fuel Sector

The ethanol subsidy comes at a time when biofuel prices have been rising at mills, after a period of historically low levels. StoneX warns that if the increase in costs at mills is reflected at the pumps, demand for ethanol may decline. The diesel adjustment, by reducing some of the competitive advantage of large distributors, maintains a favorable environment for Petrobras, which remains below import parity.

With information from Globo Rural, InfoMoney.