Brazil diesel sales down but rebound likely

Brazil's domestic diesel sales are down by 15-20pc so far in March compared with April, according to an Argus poll of fuel distributors, traders and brokers.

Diesel demand has fallen as the country took measures to stem travel and industrial activity in an attempt to contain the spread of the coronavirus. But unlike gasoline demand, which has fallen by as much as 50-70pc so far this month, demand from logistics and agricultural sectors is likely to support diesel sales during the quarantine.

The extent of the demand drop in the coming months remains uncertain. This has prompted some distributors to prioritize deals with payment upon delivery to avoid cash-flow problems in the very short term. Under normal circumstances, contracts typically require payment a few days after delivery.

Fuel distributors have also begun to reduce diesel imports in an attempt to contain losses and deal with volatility in the international market. Refineries on the US Gulf coast have cut operations — many to minimum levels of 65-70pc — in response to lower demand for diesel and gasoline in US and international markets.

Without no clear guidance on how long coronavirus will affect demand, there is a fear that refiners will have to deal with cancelled cargoes in the near future. Although independent fuel importers have gradually eroded Petrobras' dominance in imports, they tend to have less appetite for the level of risk involved in one or more cancelled cargoes.

Petrobras is likely to cut diesel and gasoline production, if it has not done so already. The company said it is too early to forecast structural and perennial impacts on the oil and gas market, as the strength and duration of the price shock are still not clear.

By Gabrielle Moreira and Chunzi Xu