Brazil's domestic ethanol demand could grow following the latest outbreak in fighting in the Middle East, under a scenario of rising gasoline prices that shift consumer interest in the coming months.
Brazilian flex-fuel vehicles can run on either hydrous ethanol (E100) or gasoline blended with 30pc ethanol (E30), with drivers usually choosing the most economic one at the time of sale. Ethanol needs to be priced at 70pc or lower than gasoline to attract drivers, a ratio known as parity.
The conflict in the Middle East is pushing crude and refined products prices higher on international markets. In Brazil, state-controlled Petrobras has a heavy influence on gasoline prices, as it provides up to 90pc of the country's demand.
Petrobras avoids reflecting immediate volatility from international markets, but the company could adjust domestic prices higher if the gap in arbitrage becomes too wide.
Latest data show gasoline as more competitive than hydrous ethanol in all Brazilian states on the week ended 21 February, when parity averaged 73.8pc nationwide, according to regulator ANP.
But market participants expect record ethanol output in the next sugarcane crop running from 1 April 2026-31 March 2027, which is bound to bring E100 prices lower in the first half of the season. The scenario of a gasoline price increase from Petrobras could further enhance hydrous ethanol's attractiveness over gasoline.
Brazil created ProAlcool, a national program aimed at fostering domestic ethanol fuel demand and the country's energy security, in 1975 amid Arab oil crisis.
As the world faces a new price shock, ethanol could play a role in addressing that challenge, according to Edmundo Barbosa, president of Paraiba state's ethanol industry association Sindalcool.
