The average resale price for S10 diesel fuel started 2023 at R$ 6,51/l. Despite the downward trend since July 2022, the price of fuel still registers a 20% increase compared to the beginning of the previous year.
Between January 2021 and June 2022, diesel prices doubled, going from R$ 3,72/l to R$ 7,68/l, reaching the highest historical value ever recorded by the ANP (National Agency of Petroleum, Natural Gas and Biofuels).
According to ILOS analyses, diesel represents on average around 37% of the cost of road freight transport. Furthermore, as mentioned in the publication Cargo Road Transport: Perspectives for 2023, on longer routes, fuel represents 47% of the total cost of the trip (routes of 1000 kilometers in trailers).
Figure 1: Historical series of the average resale price of S10 diesel oil in Brazil, from 2013 to 2022.
Source: ANP. ILOS analyses.
The consequences of diesel price variations can be felt by all Brazilians, since cargo vehicles that supply the country, buses and industrial machines depend on this fuel.
Increases in the price of diesel made it, for the first time, more expensive than regular gasoline.
Figure 2: Comparison of the average resale price of S10 diesel oil and regular gasoline in Brazil, in 2022.
Source: ANP. ILOS analyses.
The explanation for variations in the price of diesel starts with the restrictions imposed by the global pandemic of COVID-19. The compulsory isolation during this period caused a strong slowdown in the global economy, so the demand for fuels also felt a sharp drop. As a result, refineries reacted by reducing the amount of diesel produced. In mid-2021, when the pandemic situation was already better and the economy was returning to normal, the need for diesel oil began to grow, but production did not keep up with the same pace and there was a mismatch between supply and demand for the product, which boosted fuel prices.
Furthermore, another important factor for the shortage of diesel and the increase in its price was the Russian invasion of Ukraine, which began in February 2022. Russia is one of the main producers of oil and natural gas in the world and is responsible for supplying a portion relevant from the European territory. The war in Ukrainian territory caused economic sanctions to be imposed on Moscow, so Europe turned to the United States for its fuel supply. This caused doubt in the market regarding the production capacity of the product and, consequently, the price of a barrel of the Brent type soared.
Figure 3: Comparison of the average resale price of S10 diesel oil and a barrel of Brent oil in 2022.
Source: ANP, EIA. ILOS analyses.
In the month of January 2022, a barrel of Brent was costing US$ 86,51. During the year, the price of the commodity increased by 42%, reaching US$ 122,71/barrel in June.
As can be seen in the previous graphs, from the second half of 2022 onwards, the average resale price of S10 diesel oil began to fall – as did the price of a barrel of Brent oil.
One of the factors responsible for the drop in diesel prices in Brazil was the bill that, by classifying fuel as an essential/indispensable item, limits the rate of ICMS (Tax on Circulation of Goods and Services) on this item to between 17% and 18%, depending on the state. However, experts claim that this measure does not guarantee that prices will continue to fall or remain stable, since diesel prices are strongly correlated to the external economy and the price of a barrel of oil.
In addition, by promoting some cuts in diesel oil sales prices to refineries, Petrobras also contributes to reducing the average fuel price. With such cuts, the Brazilian state-owned company aims to balance its price with that of the foreign market, but without transferring fluctuations in international quotations and in the exchange rate. However, it is worth mentioning that the amount charged at the pumps is also the responsibility of the distributors and fuel stations.
Thus, with the global instability caused by the War in Ukraine, the restricted supply and increased demand for fuel and the uncertainty about the future Board of Petrobras, even with a downward trend so far, the diesel price situation for 2023 it is complex and still unstable.
References:
– BBC (17/06/2022) – Why there is a worldwide diesel shortage and how it can affect you
– BBC (06/06/2022) – Why project to reduce fuel prices may not work?
– Estado de Minas (21/06/2022) – Diesel price exceeds that of gasoline at stations in BH
– G1 (02/09/2022) – Fuel prices fall again at gas stations, says ANP
– ILOS – Overview of Cargo Transport in Brazil
