Gasoline Price at Pumps Could Tumble Amid Oil Producing Giants’ Clash

RIO DE JANEIRO, BRAZIL – The steep drop in crude oil prices on Monday, March 9th, could spur a reduction in gasoline prices at Brazilian filling stations, considerably different from the prices now practiced by Petrobras.

The scenario is a reflection of the feud that erupted over the weekend between two commodity giants, Russia and Saudi Arabia, causing the price of crude oil to plummet 20 percent, in the deepest retreat since the Gulf War.

In addition to the impact of this scenario on global and domestic markets, where the stock market had its operations interrupted shortly after opening, as it was dropping by more than ten percent, the shift tends to correct the gap between the oil company’s prices and those that reach the Brazilian consumers, say analysts interviewed by Exame magazine.

The price of oil on the international market fell 46 percent in January, 34 percent in February and 39 percent in the accumulated March, as a result of the global slowdown triggered by the surge of the coronavirus around the world. These figures are passed on at a slower pace in Brazil, because they also suffer the effect, although smaller, of the exchange devaluation.

While the price of the raw material has dropped by 13 percent in Brazilian refineries this year alone, with the oil company reporting five cuts, the price at the filling stations has decreased by only 0.5 percent. This gap is now calculated by BV bank at up to 15 percent. compared to four percent computed on Friday, March 6th. However, by the end of the day, depending on the outcome of the conflict, the number could reach 20 percent, according to Roberto Padovani, chief economist of the institution.

“You can say that there is plenty of room for Petrobras to reduce prices, but that would not necessarily justify a quick cut,” says Padovani.

The state-owned company’s pricing policy takes two parameters into consideration: the price of the commodity in the Persian Gulf and in Europe and the currency exchange rate in Brazil. “Usually, however, Petrobras does not act immediately after a shock, but waits a couple of weeks,” says Júlia Passabom, an economist specializing in inflation at Itaú Unibanco.

In addition to international prices and the exchange rate, the price of gasoline reaching the filling stations is influenced by other pricing factors, adds Passabom. This is because, for the chain as a whole, the distributor’s margin and that of the gas station are relevant, as well as taxes and the price of ethanol, which is blended into the fuel.

“There are times when prices at refineries and filling stations take off for external reasons, but the trend is for that to normalize,” she says.

Before being influenced by the weekend’s announcements, the price of oil had already seen two downward pressure factors linked to the worldwide coronavirus epidemic: one from the supply side and the other from the demand side. “The deceleration in the global economy has pushed commodity prices down. Now, how long that pressure will last. and the final prices after that process, are both unknown,” Passabom says.

“We need to see if these prices in the Gulf will hold up for long, and if the battle by Russia against shale oil production in the United States is here to stay. If the Russians succeed in maintaining the challenge and the current price levels remain this low much longer, some pass-through [to retail sales] will need to occur,” says Sérgio Vale, chief economist of MB Associates.

Source: Exame