Brazil: Government underestimates diesel demand by 200 million liters

RIO DE JANEIRO, BRAZIL – Diesel sales in the country have exceeded the projections made by the federal government for 2022.

Data from the ANP (National Petroleum, Natural Gas, and Biofuel Agency) show that the domestic market demand in the first quarter alone was 200 million liters more than estimated in the most recent EPE (Energy Research Company) report, published in April.

Compared to the previous report, the difference was even more significant, about 500 million liters.

The EPE is part of the Sectorial Committee for Monitoring the National Supply of Fuels and Biofuels, created in March by the Ministry of Mines and Energy to monitor the fuel situation in the country.

In the same month, the ministry also instituted, within the committee, the Diesel Supply Table, a group that meets weekly to monitor the country’s supply and of which the EPE is also a member.

Other data from the transport sector reinforce the upward behavior of demand. According to Fretebras, an online platform for freight forwarding, the volume of freight in the country grew 37% in the first quarter, compared to the same period in 2021. The performance was driven mainly by agribusiness and industrial products.

The scenario signals that the government’s forecasts for the second half of the year may also be underestimated.

Brazil’s Short-Term Fuel Market Outlook – EPE’s bimonthly report that shows a panorama of the fuel market in the country – projects growth in sales from July to December, only 0.2% higher than the total for the same period in 2021. Ten times less than the advance registered until April, of 2.1%.

Here are the projected volumes for the second half of the year, compared to 2021:

Historically, Brazilian demand in the second half of the year is higher because of the peak grain harvest. Added to this is the fact that sanctions on Russia have taken part of the supply from the market, reducing global fuel stocks.

RISK OF SHORTAGES

For Sérgio Araújo, president of Abicom (Brazilian Association of Fuel Importers), the risk of lack of supply in the domestic market is real.

“There is this increase in demand, and Petrobras and the other national producers, as we already know, cannot meet it. In other words, imports will be necessary. And since Petrobras’ prices are out of phase and are far below the import parity, import activities become unfeasible. That, without a doubt, increases the risk of shortages,” he said.

According to Araújo, the risk is greater for the white flag stations without exclusivity contracts. The so-called flagged stations, which carry distributors’ brands, have contracts that protect them from supply cuts.

“Naturally, they [the distributors] are going to prioritize the delivery of the product to their clients, gas stations, and the consumer client – the industries, the farms, the hospitals – those who have contracts, those who don’t have contracts are going to be served if the product is available,” said the president of Abicom.

On Friday, May 27, the government published a note stating that Brazil had sufficient stocks to ensure supply during 38 days without imports.

The manifestation came after the newspaper Valor Econômico published a letter from the current president of Petrobras, José Mauro Coelho, addressed to the Ministry of Mines and Energy and the ANP. The executive affirms that the stocks would be sufficient for 20 days.

Araújo defends that, in the face of the difficulty of practicing readjustments, Petrobras should inform the volumes of diesel it will be able to offer until the end of the year.

“With this information being passed on now, the distributors will have time to look for alternative suppliers, even if it is at a higher price. I believe that the distributors will not opt for not buying,” he declared.

Diesel oil has already gone up 47% this year alone. The readjustments made to equalize Petrobras’ prices to those of imports are criticized by President Jair Bolsonaro (Liberal Party – PL).

The Chief Executive has already fired one minister and three Petrobras presidents for the same reason. José Mauro’s replacement was announced on May 23, a little more than a month after the executive took office.

THE SCENARIO IS COMPLEX, SAY SECTORS

Both agents of the transportation sector and of the fuels themselves say that the diesel market scenario in Brazil and the world has never been as complex as it is now. The main “water divisor” was the readjustment of almost 25% in the domestic market, made in March by Petrobras.

Daniel Colella, founder and CEO of Combudata, a fuel management platform, affirms that diesel readjustments strongly impact the cash availability of cargo transporters.

“Think of the diesel price oscillation as a ladder. Sometimes you go up; sometimes you go down. Until the last readjustment [before March], the steps were not so high. Now, at this moment, everyone who depends on diesel was caught by surprise, and the cash flow was very pressured,” he said.

Colella says that the March readjustment alone caused carriers to have an average 20% increase in their total costs.

As the demand for transportation has grown, the scenario has provoked a cascading effect on inflation in this and other sectors in Brazil: “A good part of them [the carriers] need to take out credit to replenish their stocks and give continuity to their economic activities.

IMPACT ON AGRIBUSINESS

Although it is the sector that has grown the most in the Brazilian economy, agribusiness has also felt the pressure of the increase in diesel costs. And not only on the highways but on the rural properties themselves.

Leandro Nunes, strategic marketing manager of Gilbarco Veeder Root, says that the interest of agribusiness entrepreneurs in the installation of fuel flow monitoring systems has been growing.

“Previously, the standard clients who hired this system were those with medium and large movements, above 200,000 or 300,000 liters per month. But the rise in diesel prices also pressures the small businessman to have more efficient management. In agribusiness, the fuel is in the middle of the farm, which is very susceptible to fraud. With the outbreak of the pandemic and the war in Ukraine, this has become even more complicated,” said Leandro.

BIODIESEL = POSSIBLE SOLUTION

For Colella from Combudata, one of the solutions for the risk of shortage in the country is to increase the percentage of biodiesel in diesel. Currently, the proportion is 10%, as decided by the CNPE (National Council of Economic Policy) at the end of 2021.

“We should have 14% biodiesel now. Yes, it is more expensive. But we no longer have the availability problem. Right now, we are short of diesel A [pure diesel]. We need to take the pressure off it,” said Daniel.

The government is considering increasing the proportion of biodiesel, but it is not known yet to what proportion – 12%, 13%, or 14%. By a 2018 CNPE resolution, the current ratio should be 14%, but the council changed the schedule in 2021 to stop the diesel price escalation.

With information from Poder360