Petrobras backs off diesel price increase: Update

Adds Bolsonaro remarks, stock market reaction.

Brazil's state-controlled Petrobras changed course on a planned 5.7pc increase in refinery gate diesel prices in response to another strike threat from truck drivers.

The price increase, which was supposed to take effect today, would have been the first since 22 March and the biggest single increment in the year to date.

Petrobras said late yesterday that after revisiting its diesel price hedge it determined "there is room for a few more days to adjust the diesel [price]."

The company said it maintains its commitment to its international price parity (PPI) policy, which ensures domestic prices do not fall below prices in the global market.

On 26 March, Petrobras adopted a diesel price freeze to head off a repeat of a May 2018 nationwide strike by truck drivers. The option of a temporary freeze complimented a diesel price hedge adopted in December 2018 to ensure financial results in line with the company's market-based pricing policy.

Petrobras' average refinery gate diesel prices have been held at R2.1432/l ($0.55/l) since 22 March.

The fallout from Petrobras' decision intensified after Brazil's president Jair Bolsonaro confirmed that he had telephoned Petrobras chief executive Roberto Castello Branco yesterday to discuss the planned price increase.

"I called [Castello Branco], yes. I was surprised by the readjustment of 5.7pc. I will not be an interventionist. I'm not going to practice the policy we've done in the past, but I want the Petrobras figures," Bolsonaro said today on the sidelines of an airport inauguration in the northern state of Amapa. The president, who offered words of support to striking truck drivers last year, said he wants a "fair" diesel price.

Petrobras executives will be summoned next week to explain the increase, Bolsonaro said. The company's shares fell by around 8pc following his comments.

In a radio interview today, Bolsonaro's vice president, former general Hamilton Mourao, downplayed the significance of the call, saying it was an isolated incident and that Bolsonaro was not inclined to repeat pricing pressure practiced by former left-leaning administrations.

Castello Branco has been an outspoken critic of government interference at Petrobras. Before taking over at the firm in January, he regularly blasted the R0.30/l diesel price subsidy Brazil's former president Michel Temer adopted last year to bring an end to the 11-day strike. The subsidy, estimated to cost the federal government around, ended on 31 December.

The 2018 truckers' strike choked off food and fuel supplies throughout Brazil, and also led to the departure of Petrobras' former chief executive Pedro Parente.

The new diesel price freeze runs counter to Castello Branco's pledge to maintain the company's independence from the federal government, which has a long record of meddling in the oil company's decisions and policies.

Castello Branco has said he wants to reduce the company's share of the domestic refining sector to around 50pc from the current 98pc, a target that envisages the divestment of 100pc operating stakes in some domestic refineries. Price controls remain a key concern for would-be investors.