Rising production does not stop fuel prices from rising, analysts say

Last week, at an event in Mexico, former president Luiz Inácio Lula da Silva advised against the purchase of Brazilian state-owned companies, while talking about oil exploration in the country, because, if his party won the election, this sale would be reviewed.

“I have warned companies in interviews: ‘don’t buy Brazilian public companies, because if we win the elections, we’ll want to re-discuss. Because we are not going to give up the heritage that was built by the Brazilian people,” said the PT candidate, a possible pre-candidate for the Presidency of the Republic.

The former president’s statement comes at a time of mounting pressure to adopt measures to contain the rise in fuel prices – an effect felt globally due to the pandemic and intensified recently by the Russian invasion of Ukraine. In this context, according to him, one of the ways to mitigate the impact of this appreciation on the Brazilian pocket would be to increase the number of refineries in the country.

“Brazil, which should be an exporter of oil products, is importing oil from the US. There are companies importing oil in dollars, when Brazil is self-sufficient and Brazilian oil could be priced in our currency. Our refineries are producing 30% less, because Brazil does not want to produce more to consume imported gasoline, and the Brazilian people are paying the price of gasoline in dollars,” he said.

Analysts heard by CNN they said, however, that increasing production would not solve the problem.

“Subjecting refineries to artificial prices alienates investors from the country. Refining is the least profitable and most expensive activity in this market. Petrobras chose to invest more in production and distribution precisely for that reason”, says David Zilberstein, former director of the National Petroleum Agency (ANP).

“We haven’t built more refineries until now precisely because there is a fear of price manipulation. If Brazil has a lower price than on the international market, who will bring oil to sell cheaper here than on the international market?”, he says.

The expert explains that Brazil is self-sufficient in oil, but not in derivatives. Therefore, Petrobras serves 80% of the market, the other 20% comes from abroad to serve the domestic market. That is, if refineries began to charge less for the product, the chances of a shortage would be greater. “It would run out of fuel. One oil is different from the other, the biggest problem is that we have no competition here, which undermines transparency and alienates investors,” he says.

The president of the Brazilian Institute of Oil, Gas and Biofuels (IBP) and former director of Petrobras, Eberaldo de Almeida, said this Tuesday (8), in an interview with Agência Estado, that the freezing of prices for fuels such as diesel and gasoline in the country would have an impact of up to R$ 200 billion throughout this year. The scenario would also cause shortages in the country, according to the institution.

The government of President Jair Bolsonaro is discussing a direct subsidy to make up the difference with international prices. But, for the specialist, the only way out to not disorganize the market and push away investments in the sector would be to work with a subsidy located in those most in need. “There is no magic wand”, he said.

“The Dilma government tried to interfere with the price of fuel and led Petrobras to be the most indebted oil company in the world”, adds Mauro Rochlin, professor of MBAs at FGV.