Understand why fuels are so expensive – 08/27/2021 – Market

Fuel prices have never been so expensive in Brazil. Gasoline, diesel and gas cylinders have been breaking successive records, even considering the correction of old values ​​for inflation, since the end of the second quarter.

The price hike at the pumps reflects increases promoted by Petrobras in the prices of its refineries. In 2021 alone, the state-owned company has already increased gasoline by 51%. Diesel and cooking gas were up 38%.

According to specialists, the highs reflect the recovery of international oil prices after they melted at the beginning of the pandemic, with strong help from the dollar, which since the beginning of the pandemic was below R$ 5 for just seven days, last June.

In 2021 alone, the price of Brent oil, an international price reference traded in London, rose 36.5%. The dollar remains more stable, with a high of 1%, highlights the president of Abicom (Brazilian Association of Fuel Importers), Sérgio Araújo.

Oil and the dollar are basic elements in Petrobras’ fuel pricing policy, which simulates how much it would cost to sell fuel imported from the United States in Brazil, a concept known as import parity.

This account also includes the costs of transporting and unloading fuel in Brazil and the profit margin that the state-owned company would have on the sale of imported products. Based on these indicators, and with an eye on imports by competitors, the technical area of ​​the state-owned company decides whether or not to change prices.

This policy was formalized in Pedro Parente’s administration, during Michel Temer’s government, and has been maintained during the Jair Bolsonaro government with some small variations in the frequency of adjustments — General Joaquim Silva e Luna’s administration has respected longer terms than the previous one.

Petrobras’ price represents only a portion of the final price, which also includes federal and state taxes, profit margins for distributors and resellers and, in the case of gasoline and diesel, the portion related to the addition of ethanol and biodiesel.

Currently, the participation of the state-owned company represents 33.6% of the final price of gasoline, a product that has a higher incidence of taxes. In diesel, the company holds 52.4% and in the gas cylinder, 48.2%.

Although President Jair Bolsonaro tries to blame governors and other links in the distribution chain for the escalation of prices, the comparison between current prices and those prevailing in the last week before his term starts show that the greatest pressure came even from the fuel share.

In the case of gasoline, the greatest pressure was exerted by (pure) gasoline itself and by anhydrous ethanol, which is mixed with the final product, which today weighs much more on the final price than before the beginning of the government. State taxes and margins lost participation in the period.

The picture is similar when analyzing the numbers of diesel, also pressured by biodiesel, and cooking gas. In both cases, Petrobras began to represent a larger share in the composition of final prices and margins fell. The ICMS share was practically stable in both cases.

This is not to say that there was no increase in the amount of ICMS paid for each liter. The tax is calculated on a percentage of the final pump price and, therefore, tracks changes in that price. Every 15 days, the states set a reference value, based on surveys at the stations, to collect the tax.

The charging model is criticized by the government and by the fuel market itself, for feeding back the rise in gas stations: when the pump price rises, the state government increases the reference value, generating another readjustment in the pump price.

But, even so, this movement only occurs after increases in refineries, which in 2021 have followed the recovery of international prices.

“Everything, absolutely everything, depends on international commodity prices,” says consultant Dietmar Schupp. “Gasoline and diesel; ethanol as a function of gasoline and sugar prices; and biodiesel as a function of diesel and soy prices.”

“We live in a scenario of heating and recovery of the Asian economy, followed by the United States”, says the president of Sindigás (Union of Distributors of Liquefied Petroleum Gas), Sérgio Bandeira de Mello. “Valid for soy, corn, oil, propane [o gás de cozinha], which China uses in its petrochemical industry.”

The price of oil, however, was already much higher than the current one. In 2018, it reached US$ 150 per barrel, more than double the current prices, around US$ 70. But at the end of that year, the liter of gasoline was around R$ 5, in values ​​corrected by the inflation.

Part of this difference of almost R$1 in relation to the current price is explained by the devaluation of the real. It was the currency that devalued the most against the dollar after the start of the pandemic, as a response to the fall in interest rates and the increased perception of risk on the part of investors.

Faced with the effects of escalating inflation on his popularity, Bolsonaro fired the president of Petrobras, zeroed federal taxes on cooking gas and suspended the same taxes on diesel for two months.

In another move in this direction, it issued a provisional measure freeing the direct sale of ethanol between mills and service stations and authorized stations to sell fuels from other brands, alleging that competition could force prices down.

None of the measures, however, had any effect: the new president of the state-owned company promised respect for the price policy and the tax burden discount ended up being swallowed up by the rise of other price components. For the market, the release of restrictions on the sale of ethanol and gasoline will also have a limited effect.

And although commodity prices have eased a little in August, the market expects oil to rise again, operating at a level of between $70 and $80 a barrel. The UBS bank, for example, sees a “structural tightening” with the resumption of consumption without increasing production and targets US$ 75.