• Leftist President da Silva has called for more control of gasoline and diesel prices

Samantha Pearson and Luciana Magalhaes, WSJ

SAO PAULO
EnergiesNet.com 05 17 2023

Brazil’s state-controlled oil giant, Petrobras, said it would end its yearslong policy to peg the cost of fuel to international prices, dealing a blow to investors as the leftist government of President Luiz Inácio Lula da Silva looks to control inflation. 

Petróleo Brasileiro, known as Petrobras, on Tuesday said it would change its pricing system, in which domestic fuel prices are pegged to the international market, and instead use other “market references,” such as the prices of other suppliers. Petrobras offered scant detail and said there was no defined timeline for the adjustments.

Oil analysts said the company offered little clues on what to expect next.

Adriano Pires, a leading Brazilian oil expert who last year turned down the job of Petrobras CEO, said the policy seems to be “a way for them to keep prices artificially low.”

The shift was largely expected. Mr. da Silva, the 77-year-old veteran of Latin America’s left who previously held office from 2003 to 2010, has argued the government should protect the country from spikes in international fuel prices, especially in a vast nation that largely relies on road transport.

Company shares were up nearly 3% in afternoon trading on the country’s benchmark stock market. 

“The market was expecting something so bad that people were actually cheered by the statement,” said Pedro Paulo Silveira, a São Paulo-based economist, saying he hoped the government wouldn’t hold the company on such a tight leash as before.

Recent declines in oil prices have reduced pressure on Petrobras, lowering the stakes in the battle with the government over prices, he said.

“Petrobras still has space to reduce prices without causing problems for its bottom line,” Mr. Silveira said.

Under previous administrations by Mr. da Silva’s Workers’ Party, Petrobras was used as a vehicle for government intervention in the economy. Between 2011 and 2016, the company was forced to sell fuel below cost to combat inflation, a policy that cost about $30 billion and turned it into the world’s most indebted oil company.

“Brazilian companies and banks should put the country first and then think about their profits and their shareholders,” Mr. da Silva said in a speech earlier this year, criticizing what he said was Petrobras’s overly generous dividend policy. “That’s the only way we’re going to change the history of this country.”

Fuel prices have stoked inflation, pushing up interest rates to 13.75%—a major obstacle, Mr. da Silva said, to economic growth.

A spokesman for the president declined to comment further on Tuesday. 

“Today is a cause for celebration for all Uber drivers, all taxi drivers but mainly truckers,” Mines and Energy Minister Alexandre Silveira told reporters Tuesday. He called the international pricing policy introduced in 2016  “a crime against the Brazilian people that imposed handcuffs, a muzzle [on the company].” 

He said that Petrobras’s announcement was intended as a message to all state companies to “fulfill their social role.”

Petrobras, Brazil’s largest company by market capitalization, has long found itself at the heart of a bitter political debate in the country over the role of the state in the economy.

After the impeachment in 2016 of Mr. da Silva’s successor, Dilma Rousseff, then-President Michel Temer pegged domestic fuel prices to the international market, a measure widely applauded by investors. 

Opposition politicians have accused Mr. da Silva of trying to lower fuel prices to shore up his falling approval ratings, using the company as a piggy bank for his cash-strapped administration. 

They argue that Petrobras, which is also listed in the U.S. and counts some of the world’s largest funds among its shareholders, should be allowed to track international prices, helping attract the investment the company needs to explore the country’s vast offshore oil reserves. 

Jeffrey T. Lewis contributed to this article.

Write to Samantha Pearson at samantha.pearson@wsj.com and Luciana Magalhaes at luciana.magalhaes@wsj.com

Appeared in the May 17, 2023, print edition as ‘Brazil Set To Change How It Prices Oil’.