HOUSTON: Petroleo Brasileiro SA executives this week will seek government approval to increase wholesale fuel prices at its Brazil refineries, two people close to the discussions told Reuters.
Price increases are a sensitive issue in Brazil because of the nation's double-digit inflation rate, and because of elections in October in which President Jair Bolsonaro will run for re-election. Bolsonaro said last week he wants Petrobras to accept lower margins rather than raise prices.
Petrobras controls fuel prices in Brazil through its holdings of more than 80% of the nation's refining capacity. The proposed price increase would narrow the gap with imported fuel but stay under international prices, the people said, declining to be named as the information was private.
Petrobras didn't respond to a request for comment.
The state-controlled oil firm is selling fuels at a discount compared with international fuel, with the gap widening as global oil prices hit $130 a barrel on Monday on Russia's invasion of Ukraine and supply disruptions. Russia calls its actions in Ukraine a "special operation".
Petrobras sees record net profit in 2021 at nearly $20bn
Petrobras management will alert the government there is risk of fuel supply shortages in different regions of the country, a third person said. Traders have suspended imports in some regions as retailers would have to sell at a loss to compete with Petrobras prices, this person said, declining to be named as the information was private.
Petrobras Chief Executive Joaquim Silva on Thursday canceled a trip to Houston, where he was scheduled make a presentation at the CERAWeek energy conference, in order to discuss the price increase with the government, the people said.
On Sunday, Petrobras refineries were selling gasoline and diesel at an about 26% and 30% discount, respectively, to international prices, the highest gap in 10 years, according to estimates by Abicom, a fuel import group in Brazil.
The fuel price discount would need to exceed 30% to harm the company financially, some analysts say. A full parity with international prices could potentially leave it vulnerable to stronger fuel importers, others say.
"If there were excessive fuel imports, Petrobras would lose market share," said Ibiuna Investimentos equity analyst Gustavo Allevato.
Petrobras in 2021 smashed its all-time record for annual profit and dividend payouts, thanks to sky-high Brent prices. That has left Petrobras in a stronger position than in the past to absorb higher oil prices, analysts say.
The oil company does not disclose the gap between its wholesale and international prices, but analysts make their own estimates.
Petrobras fuel sales were still profitable before recent sanctions against Russia sent Brent prices rocketing, the people said. The company had reduced margins to absorb the market volatility in past months.
It last adjusted fuel prices on Jan. 11, when Brent futures closed at $83.72 per barrel, well below current levels.
The pressure to hold prices down was a factor in Petrobras Chairman Eduardo Bacellar Leal Ferreira's decision to step down late last year, the people said. Ferreira had decided to step down before Brent reached $100 per barrel, to avoid the pressure during an electoral year, the first two people said.
Ferreira told Reuters on Saturday his decision to leave after his term expires next month is purely personal, as he wishes to spend more time with his family.
Brazilian President Bolsonaro last week said Petrobras could lower its profit to keep fuel prices from surging. He said he was certain that Petrobras would shield consumers from steep increases.
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