Brazilian oil company Petrobas scraps international price peg

The Brazilian state-run oil company Petrobras on Tuesday, 16 May, 2023, ended its policy of pegging fuel prices to the international market. Keeping his promise during his election campaigns to "Brazilianize" Petrobras’ pricing policy for the benefit of the local Brazilian people, President Lula da Silva has succeeded in putting an end to the pegging fuel prices. President Lula had earlier referred to the old policy being aimed to "please investors, to the detriment of the Brazilian people."

New policy announcement by Petrobas

The earlier policies adopted by the oil company had delivered record profits of $36 billion last year due to the global surge in fuel prices following the Russia-Ukraine war.
Faced by resistance from investors in Petrobras, the company has still gone ahead with policy changes that would use ‘market references’ for setting fuel prices.

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New policy ends subordination to the import parity prices

The new policy which puts an end to “the mandatory subordination (of prices) to the import parity price” in US dollars was welcomed by everyone.
Petrobras has announced hefty price cuts to meet the new policy changes; 12.6 percent for gasoline, 12.7 percent for diesel and 21.4 percent for cooking gas.

A welcoming policy change

President Lula posted a video on his social media handle where he can be seen applauding the new policy adapted by Petrobas.
"I am particularly happy, and I think the people will be too. More than a campaign commitment, it is a victory of the people... And it is only the beginning. We are going to invest in industry and the generation of jobs”: President Lula.

Jean Paul Prates, Petrobras chief executive also commented on the issue by saying that "We will continue to be the market reference, without abdicating the company's competitive advantages".

Rise in share prices

The share prices of Petrobas rose to more than four percent on the Sao Paulo stock exchange on Tuesday, 16 May, 2023, before setting back at 2.2 percent at the close.
The rise in share prices was an unexpected but yet a welcome occurrence. Oil industry analyst, Israel Rodrigues of Genial Investimentos expected “the market to be something much worse,” perhaps a direct intervention.

A happy ending for everyone?

The Russia-Ukraine war that spiked the fuel prices around the globe had become an important issue in President Lula’s election campaign for his third term.
The promise made by President Lula during his election campaigns to regulate the fuel prices had earlier caused anxiousness amongst investors.
However, with the new policy changes adopted by Petrobas while maintaining its stock prices seem to be setting the tone for the fuel prices in Brazil right.

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