Brazil diesel importers are cautious but hopeful about the start of 2023 amid uncertainties regarding president-elect Luiz Inacio Lula da Silva's plans once in power.
Diesel imports into Brazil in January-November increased by 8pc from the same period of 2021 to 14.44bn l (91mn bl), according to data from the ministry of economy, a sign of recovering demand from the Covid-19 slump. But domestic diesel demand in the final stretch of 2022 was below expectations, preceding a typical period of lower consumption from the agricultural sector.
Brazil relies on diesel imports to cover around 20pc of total demand, so how the incoming administration approaches overseas markets is a major concern. Importers are considering different scenarios for state-controlled Petrobras' price policy but need clearer signs from the new administration to design business strategies with refiners other than from the US Gulf coast — the dominant provider to Brazil.
Brazil may also face tougher competition from Europe for diesel cargoes in 2023, as the EU's embargo on Russian imports begins in February.
"Brazilianization" and energy transition
During his campaign, Lula advocated against Petrobras' import parity price policy and in favor of the "Brazilianization" of fuel prices sold in domestic refineries — that is, pricing oil products in the domestic market in Brazilian reals instead of US dollars.
But senator Jean Paul Prates, a member of the president-elect's Worker's Party who is one of the frontrunners to lead the state-owned company, is seen as "prudent" by some importers. Prates — who is sympathetic to the creation of the fuel stabilization fund to soften price increases using different forms of financing, such as taxes on oil exports — is "open to dialogue," according to Sergio Araujo, executive president of Brazil's fuel importers consortium Abicom, who has met with Lula's mines and energy transition team.
The sector is still somewhat worried about Lula intervening in fuel prices, even though there has been pressure from Petrobras' political representatives to avoid political crises during the final days of outgoing President Jair Bolsonaro's term. Market participants are cautiously hopeful that Brazil is experiencing a different political and economic moment compared to the previous Workers Party time in power from 2003-2016.
Now, the state-controlled company's financial health and investments in the energy transition are being closely watched, they say. In addition, Petrobras has narrowed in size after selling the 46,000 b/d Isaac Sabba (Reman) refinery, the 333,000 b/d Mataripe refinery and the 6,000 b/d SIX refinery as part of the company's divestment program. Petrobras has also signed a sales and purchase agreement with domestic investment firm Grepar Participacoes for the 8,000 b/d Lubnor refinery.
