Brazil hits pause on diesel import interest

A pause in Brazilian diesel import negotiations is likely to extend into April as domestic demand wanes and the market braces for a wave of shipments contracted before coronavirus-related movement restrictions were put in place.

Brazil's state governments adopted more restrictive social isolation measures in mid-March, a move that signaled caution for the refined products sector. Many fuel distributors halted imports as they monitor the degree to which the outbreak will sap domestic diesel and gasoline demand.

As of 1 April, 23 ships were scheduled to deliver around 1.1bn l of diesel by the end of the month, slightly higher than the 1bn l mark forecasted for March delivery, according to oil analytics firm Vortexa. There are currently no additional Brazil-bound import vessels scheduled for departure in April and May.

Import data for March is expected from the Brazilian Ministry of Industry, Foreign Trade and Services (MDIC) in the coming days.

Domestic diesel sales in the second half of March were down 15-20pc compared with the first half of the month, according to distributors, brokers and trading companies surveyed by Argus. Gasoline sales slumped by as much as 50-70pc in the same period, industry experts said.

The impact of social distancing measure was felt most acutely in the final week of March, the possible start of a more profound downward trend as the transport sector slowdown led to diesel sales dropping by almost 20pc.

Weakened domestic demand and the lack of visibility on recovery prospects have increased the volume of fuel products readily available for export. Tracking data shows that eight ships are scheduled to leave the country — six departing from the port of Paranaguá, with a combined 294mn l of diesel destined for South Africa, Bangladesh, China, Spain and India.

The risk-averse sentiment in Brazil mirrors the posture of US Gulf coast refiners. For some US Gulf coast exporters, memories of force majeure declarations on export vessels to Brazil during the May 2019 truck drivers' strike remain fresh.

The outlook for exports bound for the US Gulf region is dim, as virus-gutted demand puts significant downward pressure on prices. US diesel production averaged 4.7mb b/d for the week ended 27 March, up 2.4pc over the previous week and a 3.6pc year-on-year increase, according to data from the US Energy Information Agency (EIA).

The downward trend in Brazilian diesel production that started last month is expected to extend throughout the second quarter.

Utilization rates at state-controlled Petrobras' domestic refineries fell to 74pc in March from 78pc in February and a recent peak of 83pc in January, according to information the company provided Argus.

Petrobras currently holds around 99pc of the country's refining capacity.

By Gabrielle Moreira