Page 5 - LatAmOil Week 11 2022

LatAmOil COMMENTARY LatAmOil

“She asked me if Brazil could be part of this effort The incumbent president is not inclined to
[to produce more oil], and I told her: ‘Of course see fuel prices rise, as he is concerned that pop-
it can.’ We are already increasing production, ular discontent might cause him to lag even
while most OECD [Organisation for Economic further behind his expected opponent, former
Co-operation and Development] countries have President Luis Inacio Lula da Silva, in opinion
reduced it. We have increased our production in polls. As such, he has been vocal in his criticism
the last three years,” Albuquerque wrote. of Petrobras lately. Last week, for example, he
The minister did not say exactly how Brazil, complained that the NOC was too profitable
which extracted slightly more than 3mn barrels and urged it to make sacrifices in order to keep
per day (bpd) of crude in January of this year, fuel prices down. He also indicated that his gov-
intended to increase production or exports. Nor ernment was ready to examine the possibility
did he say how quickly his country might be able of fuel subsidies, although Economy Minister
to bring the extra barrels to the world market. Paulo Guedes has said that such a policy would
It is worth noting, though, that Brazil is not be too costly.
the only South American state that may end up In airing these complaints, Bolsonaro has
working with the US on this front. Colombia’s found himself at odds with Petrobras’ CEO
President Ivan Duque has offered to make more Joaquim Silva e Luna. The president appointed
oil from his country available, and US compa- Luna to the post last year to replace Roberto
nies have reportedly been trying to purchase Castello Branco and appears to have hoped that Bolsonaro is
more heavy crude from Ecuador. In the mean- his own appointee, a military veteran, would be
time, the US government is even considering more compliant than the business-minded Cas- not inclined to
lifting the sanctions it imposed on the Venezue- tello Branco. However, Luna has been unwilling see fuel prices
lan oil industry in early 2019. to freeze prices to accommodate the president
and has defended Petrobras’ independence from rise, as he
Lower prices, please the government – even in the face of hints from
With respect to consumption, Brazil is facing a Bolsonaro that he might be fired. is concerned
very different set of pressures.
One of the factors in play is Petrobras, the In flux that popular
national oil company (NOC). The state-owned The situation is still very much in flux with discontent
company raised its refinery-gate prices for gas- respect to consumption. Luna and the president
oline by 18.8% and for diesel fuel by 24.9% last are still at odds over domestic fuel prices, and might affect
week in response to the upward trend on world there are months left before Brazil’s presidential
crude oil markets. In purely fiscal terms, this election. his chances of
seems like a reasonable step to take, as it would In other words, there are months left for Bol-
keep the company in line with global market sonaro to fret over domestic fuel prices – and for re-election
trends and preserve its status as Brazil’s largest world oil markets to take any number of spec-
corporate taxpayer. tacular twists and turns as the Russia-Ukraine
But the socioeconomic impact of such a conflict unfolds (and as the Western response to
move is a different matter. Fuel price hikes tend the conflict evolves).
to hit the poor hard, and as such they arouse As such, there may very well be more turmoil
resentment in Brazil, where poverty rates have to come with respect to Petrobras’ executive
been on the rise since 2014. Additionally, they slate, fuel subsidies and related issues.
represent a burden for a group that plays a cru- In the meantime, Brazil’s economy will also
cial role in the Brazilian economy – truck driv- bear watching. The South American country
ers, who are also politically powerful and have suffered greatly as a result of the pandemic and
served as a crucial base of support for Jair Bol- has been hit hard over the last year by a drought
sonaro, Brazil’s right-of-centre president. that forced it to import more natural gas to make
And Bolsonaro, as it happens, is seeking up for the loss of hydropower generation capac-
re-election this year. According to press reports, ity. If world crude oil prices remain high and
he is preparing to kick off his formal campaign push domestic fuel prices higher, there is likely
later this month, in advance of the vote, which to be more pain, and the pain could trigger fur-
will take place in early October. ther political changes. ™

Luna (L) and Bolsonaro (R), shown in March 2021 (Image: Office of the Brazilian Presidency)

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