Petrobras cuts fuel prices after tax return in Brazil; stock drops 4%

Petrobras announced on Tuesday (Feb. 28) the reduction of gasoline and diesel prices starting today (Mar. 1) for distributors. The measure comes one day after the government agreed to resume taxation on fuel, despite political pressure.

Petrobras shares fell 3.48% (PN) and 4.39% (ON) at the close of Tuesday after the announcement of price cuts for distributors, with investors getting rid of the papers.

According to Petrobras, starting this Wednesday, the average selling price of gasoline A to distributors will go from R$3.31 to R$3.18 per liter, a reduction of R$0.13 per liter, or 3.9%.

Given the mandatory blend of ethanol in the composition of gasoline sold at service stations, Petrobras’ share in the price to the consumer will be, on average, R$2.32 for each liter sold at the pump, the company said.

For diesel A, the average sales price for distributors will go from R$4.10 to R$4.02 per liter, a reduction of R$0.08 per liter, or 1.95%.

Given the mandatory blends in this case, Petrobras’ share of the price to the consumer will be, on average, R$3.62 for each liter sold at the pump, the company said.

“These reductions have as main goal the search for the balance of Petrobras’ prices to the national and international markets, through a gradual convergence, contemplating the main supply alternatives of our customers and the necessary market share for the optimization of assets,” said the state company in a statement to the market.

The state-run company added that, in forming derivatives prices in the domestic market, “it seeks to avoid the transfer of the volatility of prices and exchange rates while preserving a healthy competitive environment under the terms of current legislation”.

Petrobras releases late Wednesday afternoon, after the market closes, the results for the fourth quarter of 2022.

The conference call with analysts will be on Thursday (Mar. 2).

The announcement exposes that the government has possibly made political use of Petrobras to compensate the return of federal taxes on fuel in an attempt to avoid a pass-through to consumer prices, which would be considered an unpopular measure.

The Ministry of Finance’s target is to raise about R$28 billion this year with tax reductions on gasoline and ethanol.

To this end, the plan should include the participation of Petrobras, which should cushion the resumption of tax collection. So far, however, there is no definition of what kind of definitive contribution will be provided by the company.

The Minister of Finance, Fernando Haddad, said yesterday that Petrobras would act respecting the International Parity Price (PPI).

Also, on Tuesday morning, the state-owned company stated, “product price adjustments are made in the normal course of its business and follow its current commercial policies”.

The company “reiterates its commitment to the practice of competitive prices and in balance with the market, while avoiding the immediate pass-through of external volatility and exchange rate caused by circumstantial events.

The discussions about the role of the state-owned company in this new environment of fuel taxation have reinforced the perception in the market that there will potentially be some interference in Petrobras’ pricing policy.