Petrobras, Brazil's state-controlled oil company, will raise the price of diesel A it sells to distributors by R$1 per liter starting on Thursday. Drivers should see no change at the pump: a federal subsidy approved by President Luiz Inácio Lula da Silva offsets the increase by the same amount, according to the company itself.
The subsidy runs for 30 days and keeps the company's selling prices to distributors unchanged, G1 reported. Had the increase reached gas stations, filling the 80-liter tank of a pickup truck would cost R$80 more. The rise is more than double the R$0.44-per-liter change involved in the end of a gasoline discount last week.
Why the increase came now
The move was expected by the market, which had been warning of diesel shortages, according to newspaper Folha de S.Paulo. The resumption of the war in Iran pushed oil back above US$100 a barrel, and Petrobras had been selling diesel at less than half the import parity price, the benchmark that simulates the cost of bringing the fuel in from abroad. In recent days, farmers in the southern state of Rio Grande do Sul were already struggling to find diesel.
Brazil imports about 30% of the diesel it burns, nearly one liter in every three. Analysts saw a risk of shortages in October, when moving the grain harvest lifts consumption. Lula approved the subsidy last week precisely to face the rise in international prices.
Explained: diesel A is the refinery product sold to distributors, before the mandatory blend with biodiesel that reaches filling stations. The subsidy, called "subvenção" in Brazil, is a Treasury payment per liter sold, given to producers and importers to cover part of the gap between domestic and international prices. That gap now exceeds R$3 per liter.
How the subsidy cancels the increase
By joining the new program, Petrobras gets an extra R$1 for each liter of diesel sold, which offsets the announced rise. Added to an earlier program, the reimbursement reaches R$2.12 per liter, still short of the full gap, Folha reported. In a statement released on Wednesday, the company said the program is "compatible with the interests of the company, preserving its flexibility in implementing the commercial strategy".
The company also said its pricing follows market share, refinery optimization and profitability, and that it avoids immediate pass-throughs because of volatility in oil prices and the exchange rate, according to G1. It is the second fuel price move in a week: last Thursday Petrobras ended a R$0.44-per-liter gasoline discount, taking the average price to distributors to R$3.05, while a R$0.63 cut in federal taxes should leave gasoline R$0.19 per liter cheaper at the pump. Because the diesel subsidy lasts 30 days, the decision lands back on the government's desk in mid-October, at the height of harvest demand.