São Paulo – Filling the tank has never been so expensive. The average price of a liter of regular gasoline in Brazil was R$5,955 last week, according to a survey by the National Agency for Petroleum, Natural Gas and Biofuels (ANP) between 15 and 21, but it can be found above R$7 at service stations in Acre, Rio de Janeiro and Rio Grande do Sul. The average value in August, 5.90 BRL, is the highest in the past 20 years in nominal terms. Since the beginning of 2021, fuel has increased by approximately 28%.
One of the main reasons is the price of oil in the international market. A barrel of Brent – which is traded in London and used by Petrobras to calculate the price – is up nearly 40% since the start of the year, putting pressure on fossil fuel prices overall.
Petrobras, which supplies distributors, calculates the price at refineries based on the price of oil and the exchange rate, since the commodity is priced in dollars. In this sense, the appreciation of the US currency, which accumulated at 1.55% in 2021, also forced gasoline to rise. The state-owned company has raised the price of fuel nine times this year alone.
After a sharp decline at the beginning of the Covid-19 epidemic, as a result of the global economic slowdown and the dispute between Saudi Arabia and Russia – which flooded the market at that time, which led to a drop in prices – the price of oil returned to rise with the resumption of economic activities. But if fuel consumption increases, global production will not progress at the same pace.
According to the information of the International Energy Agency, world production of fuel reached 92.3 million barrels per day in the second quarter of 2020, while demand reached 84.8 million barrels. In the same period in 2021, demand rose to 96.7 million barrels per day, but production remained at 94.9 million barrels. According to the forecasts of the International Energy Agency, global production should exceed demand again in the first quarter of 2022.
But there are other factors that can affect oil prices, such as the resurgence of the epidemic, with a delta variable, and geopolitical risks, such as regional conflicts. “We have no control over this volatility,” said the director of the Brazilian Center for Energy Infrastructure (CBIE), Pedro Rodriguez.
However, in contrast to the exchange, Brazil could have a little more calm. Real devaluation occurs for both external and internal reasons, and among these factors are uncertainty about the future of the epidemic, the government’s commitment to fiscal responsibility and political instability.
Another component that contributes to the increase in gasoline is the price of ethanol. In Brazil, aqueous ethanol is sold as fuel at service stations and anhydrous ethanol is mixed with gasoline at a rate of 27%. Both are on the rise.
The price of anhydrous ethanol rose by 5.18% in the latest weekly survey conducted in São Paulo by the Luiz de Queiroz School of Agriculture and the Center for Advanced Studies in Applied Economics (Esalq/Cepea), at the University of São Paulo (USP). In the year, the difference was 56.5%.
One of the reasons is the result of the 2021/2022 sugarcane crop, which is lower than the production of the previous cycle. The latest survey by the National Supply Corporation (CONAP) forecast a 9.5% decrease in the sugarcane harvest and a 10.8% decrease in the total volume of ethanol.
During the water crisis, sugarcane was one of the crops hardest hit. “There have been significant losses from drought and frost,” said economist Andre Braz, of the Brazilian Institute of Economics at the Getulio Vargas Foundation (Ibre-FGV).
Anhydrous ethanol is more profitable for millers than aqueous ethanol, so even with crop failures there was an increase in the production of the former and a decrease in the latter.
“As of the date of the survey, anhydrous alcohol production was a priority – 10.8 billion [de litros], with a growth of 5.9% compared to the previous year, at the expense of water – 18.3 billion, a decrease of 18.5% due to the higher profitability of anhydrous this year ”, states the Konab report.
The average price of hydro-ethanol, sold at gas stations, increased 37% over the year and reached R$4.50, according to the National Ports Agency. In addition to declining production, advances in the value of gasoline itself affect prices.
According to Rodrigues, of CBIE, hydrated ethanol tends to increase when gasoline rises, in a feed-back cycle. “The prices at the service stations are free. When a competing product rises, [o dono do posto] It increases the other too.” The National Ports Agency looks for prices, but does not control them.
In order for the consumer to be able to save on refueling, taking into account the differences in the performance of cars with the two types of fuel, the value of hydro-ethanol should reach 70% of the value of gasoline. However, if the concern is about the environment, there is nothing to discuss: biofuels are less polluting.
Gasoline price composition
According to the National Ports Agency, the value of gasoline at gas stations consists as follows: the price of the gasoline product (35.6%), which is mainly Petrobras; price of anhydrous ethanol (14.8%); Federal taxes such as Cide, PIS/Pasep, and Cofins (12.6%); state taxes, which is ICMS (28.1%); and distribution and resale margin (9%). The proportions may vary depending on the period and condition of the sale.
Taxes are the most weighty ingredient on the pie, especially ICMS, at the state level. Rodriguez noted that “Governments have always looked to gasoline as a source of income, as in electricity, and not with a view to appropriate public policies.” According to Brazz, at the moment, there is no room for tax cuts, as states are burdened with debt and have little investment capacity.
In the assessment of analysts, there are no short-term alternatives to holding the price of gasoline. However, in Rodriguez’s view, governments can promote initiatives to serve certain segments of the population using treasury funds, such as Vale Gás, in São Paulo, which funnels money to vulnerable families to buy cooking gas. For Poo, the solutions are long-term, such as building new strainers.
Can the government intervene?
In the past, the government has been interfering with petrol prices through Petrobras. However, in the assessment of analysts, this practice is not recommended. It is worth noting that the oil company, despite being state-owned, is a public company, and any interventions can harm other shareholders.
“Whenever the government tries to separate pricing policy from market laws, it creates inefficiencies in the sector and in compensating private capital, which hopes to achieve profitability. With dams [de preços]This turns out to be a loss,” Prause noted.
According to economists, the interventions prevent investments not only in Petrobras, but in the sector as a whole. “They are firing investors and someone will have to foot the bill,” Rodriguez declared. An example is the small number of refineries in the country (18) compared to the United States, due to “fear of the government”. He noted that “there are 160 in the United States.”
In February of this year, amid rising prices, President Jair Bolsonaro changed the leadership of Petrobras, and announced via social networks that General Joaquim Silva y Luna would replace Roberto Castelo Branco, who was then head of the state-owned company. This drove down the company’s stock prices – it took four months for the company’s shares to return to the level they were before the change.
Effects on inflation
Like gasoline, for similar reasons, the average price of LPG – cylinders – has risen 21.5% since January, to R$94.40 in August. In states such as Mato Grosso and Pará, the price reaches R$130. These elements play an important role in the Broad Consumer Price Index (IPCA), the official inflation indicator in Brazil, which is measured by the Brazilian Institute of Geography and Statistics (IBGE).
In other words, in addition to hurting your pocket when fueling your car or cooking, increases in fuel prices are directly reflected in inflation, which this year, through July, was 4.76%. Gasoline and benzene are among the most important contributors to the index’s progress.
This is because, in addition to the direct effect, there are also indirect effects. Like gasoline and ethanol, the average price of diesel has also risen by about 25% since January — and most of the country’s freight and mass transit depend on this fuel. Bottom line: It raises the cost of goods and transportation.
The increase in diesel is more dangerous. Gasoline affects the household budget, but diesel severely affects the flow of products, freight and urban buses,” Braz noted. “It can even make products from the open market go up.”
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