Why are fuel prices soaring and how far can they stop

In one year, fuel prices have increased by more than 30%. Photo: Fernando Frazão / Agência Brasil

The fuel pressure on the inflation does not show any signs of loosening. A survey carried out by the National Petroleum Agency (ANP) shows that over the past ten weeks, the liter of gasoline has increased by 5.1% at service stations. Diesel increased by 2.4%. And the price of a 13 kg bottle of cooking gas was 5.3% more expensive.

In at least three states – Acre, Rio de Janeiro and Rio Grande do Sul – it is already possible to find stations charging over R $ 7 per liter of gasoline. The lowest average price is in São Paulo (R $ 5,653) and the highest in Rio de Janeiro (R $ 6,513).

Several factors explain the rise in fuel prices: high oil prices abroad; the devaluation of the real (3.62% over the period, according to the Central Bank), which also affects local costs; the resumption of economic activity; and problems with the cultivation of sugar cane.

These are the latest figures. But the price increase movement started much longer ago. Over the course of a year, all major fuels increased by more than 30%, the national average.

According to the IBGE’s IPCA-15 measurement, gasoline has become 40% more expensive in 12 months. Ethanol jumped 53%. Diesel, 36%. And the prices of natural gas for vehicles (CNG) and bottled gas rose 31%.

The price of oil remains under pressure on the international market

The price of a barrel of oil is around US $ 70, double the price of October 2020. “The Organization of the Petroleum Exporting Countries (OPEC) established restrictions on production at the start of the pandemic,” he explains. analyst Guilherme Sousa, from Active Investments. .

He points out that it is difficult to set a deadline for prices to stay at higher levels. “We expected a normalization in the second half,” he said. According to him, some of the volatility in fuel prices has been brought under control with the spacing out of price adjustments by Petrobras.

Nevertheless, Sousa points out that the price of a liter of gasoline is exceeded compared to the international market. According to him, the lag would reach 15% – and that would be the increase in refineries if Petrobras decided to immediately adjust prices to external reality.

Swiss bank Julius Baer head of economic analysis Norbert Rücker points out that, throughout the pandemic, demand for oil has recovered faster than supply. “It lowers inventories, the market contracts and the price of oil tends to rise.”

This scenario should continue in the coming months. The analyst also recalls that there are the usual ups and downs in the market, when concerns about pandemic setbacks put pressure on prices.

However, Rücker notes a slowdown in the growth rates of oil demand: “The rapid expansion is over and it is returning to a normal pace. Thus, he projects that in the next 12 months, there are more possibilities of reduction than increase in the price of the barrel.

“As oil-producing countries relax their supply constraints and shale production gradually increases, supply adjusts to demand. As a result, stocks stop dropping and, in exchange, they end up increasing, which ultimately leaves a more favorable situation, ”he says.

Problems With Sugar Cane Cultivation Affect Gasoline Prices

Another factor that helps keep gasoline prices higher, according to Sousa, is anhydrous ethanol, which makes up 27% of gasoline makeup.

Since the second half of July, prices have increased by 10.6%, according to the Center for Advanced Studies in Economics at the University of São Paulo (Cepea-USP). The reason is the mismatch between low supply and high demand, stimulated by the return of classes to class.

The increase is not limited to anhydrous alcohol, which mixes with gasoline and therefore influences the price of the petroleum derivative. Hydrated alcohol has also become much more expensive – it’s the fuel that has increased the most in the past 12 months, according to the IBGE.

According to Cepea, the impacts caused by the July cold snap are worrying. The first and second winter frosts affected an area of ​​about 1 million hectares, or 26.9% of the harvest that will be harvested by the end of this agricultural cycle, underlines the Association of the industry of the sugar cane (Unica). Harvest should be completed in about a month.

The technical director of the organization, Antonio de Padua Rodrigues, explains that the biggest drop in productivity in July and August was already expected, because during this period a lot of sugar cane was harvested, damaged by frost. “The weather phenomenon necessitated a significant change in the dynamics of the harvest, further affecting the yield of the harvested crop,” he says.

The impacts of cold could be felt in the next agricultural cycle. According to the executive, the supply of sugar cane expected for the 2021/22 harvest in the Center-Sud region should reach 530 million tonnes, “with a downward bias, given the still uncertain impact of the third frost and fire starts which have been observed in recent days “.

Fuel prices also reflect the increased flow of vehicles

Rücker points out that demand for oil has largely returned to pre-crisis levels. “China’s oil demand has stabilized at high levels, fuel consumption on US highways seasonally exceeds historic highs, air traffic is recovering quickly, and only international air routes are taking longer to recover, “he wrote in a report,” The pandemic setbacks bring some restrictions in Asia, which are minor and only slightly reduce demand. “

As the economy recovers, demand for fuels is also on the rise in Brazil. According to the Brazilian Association of Motorway Concessionaires (ABCR), in the 12 months ended in July, the flow on toll roads increased by 4.1% compared to the previous period. The movement of heavy vehicles increased 8.2%.

In the first half of the year, distributors’ diesel sales increased 11.1% compared to the same period in 2020. Gasoline sales, according to the ANP, increased 8.1%.

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