Page 9 - FSUOGM Week 21 2022

FSUOGM COMMENTARY FSUOGM

A slump in demand in 2020 forced a number Additionally, Albuquerque’s successor Adolfo
of US refineries to close, while others opted to Sachsida has started talking about the possibility
convert their plants to biofuel production. Now, of privatising Petrobras – apparently because the
the reopening of economies and the resumption president is tired of being blamed for its unpop-
of travel is combining with disruptions related to ular decisions and not just because a sell-off
the Ukraine war to drive up demand and prices might improve its performance.
for fuel, including diesel and jet fuel. Mean- These developments all but guarantee that
while, as other countries shun Russian fuel, they Petrobras’ fate and pricing will be part of the
increasingly look to other sources, including the discussion in the run-up to Brazil’s presiden-
US, for supply. tial election. The discussion is likely to be spir-
The US is by far the world’s largest producer ited, as Bolsonaro, a right-wing populist who
of jet fuel, and output has been steadily rising has moved away from his earlier statements in
as both domestic and international air travel favour of market economics, is running against
has rebounded from the early waves of the pan- leftist candidate Luiz Inacio da Silva.
demic. This is expected to continue, but it will
put pressure on some elements of an already Asia
stressed distribution network. Across the Pacific, lockdowns in China have
For diesel, pressures look set to be exacer- offered something of a reprieve to diesel and
bated further still by the arrival of the summer jet fuel markets, dampening demand at a time
driving season in the US. Record-high prices when the war in Ukraine and sanctions on Rus-
have not yet dented demand. sia have caused jet fuel prices to spike. However,
there have been warnings that as Chinese lock-
Latin America downs eventually ease and demand rebounds,
In Latin America, the war in Ukraine and the Russian supply will decline further and prices
removal of Russian barrels from the world can be expected to rise higher still.
crude market does not seem to have led directly The surge in jet fuel prices – up more than
to extensive disruptions to diesel or jet fuel sup- 50% so far this year – has come as more and
plies, despite the fact that many of the countries more Asian countries are lifting pandemic-re-
in the region depend on US imports. lated travel restrictions. It threatens to under-
However, fluctuations in crude oil prices mine the impact of this reopening for airlines.
have caused the price of refined products to go There are some bright spots, such as new
up in most Latin American countries. Fuel tariff refining capacity coming online in Asia fol-
hikes have helped trigger street demonstrations lowing delays that have been attributed to the
and strikes in multiple countries, including but pandemic and to weak refining margins. The
not limited to Chile, Honduras, Paraguay and situation has now changed, with Asian refiners
Trinidad and Tobago. reported to be reaping record profits in recent
They are also playing a role in Brazil’s upcom- weeks as the region also ramped up exports to
ing presidential vote. The country’s incumbent Europe in a bid to help replace a shortfall of Rus-
President Jair Bolsonaro, who hopes to retain sian fuel.
his job in the October election, depends on the However, with many refiners (at least outside
political support of Brazil’s independent truck- China) already running at full capacity, there is
ers. As a group, these truckers wield considera- limited potential to ramp up fuel production as
ble influence, and they are outraged at the NOC demand continues to rise. China is an exception
Petrobras’ decision earlier this month to increase as lockdowns there persist. Refinery through-
domestic diesel prices to keep them more or less put in the country was down 11% year on year
in line with world market trends. in April and had fallen to its lowest level since
This stance is understandable from a political March 2020. Chinese refinery output can thus
perspective, but the truckers have threatened to be anticipated to rise as lockdowns in that coun-
stage a national strike and mount road block- try ease – but so too can the country’s domestic
ades on May 21 to express their discontent. If fuel demand, and thus the potential to ease the
these protest actions continue beyond May 21, looming fuel supply crunch remains limited. ™
they have the potential to wreak great havoc on
the Brazilian economy, which is still working to
recover from the ravages of the pandemic. This
is not a theoretical matter, as it has happened
before. Many Brazilian voters still have vivid
memories of the 10-day truckers’ strike in 2018
that ended up paralysing the country for weeks.
Bolsonaro, of course, is taking the truckers’
side – and taking Petrobras to task for raising
prices, even though the company is not required
to take the government’s policy considerations in
mind when setting tariffs. He has also replaced
the state-owned company’s CEO and appointed
a new cabinet member to head the governe-
ment department following the resignation of
Mines and Energy Minister Bento Albuquerque.

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