By Lisandra Paraguassu and Bernardo Caram
BRASILIA (Reuters) – Brazilian President Jair Bolsonaro on Monday threw his weight behind measures to tamp down domestic fuel prices after the Ukraine conflict sent oil prices to their highest levels since 2008, adding to pressure on state-run oil company Petrobras.
A government official told Reuters on condition of anonymity that the Bolsonaro administration is studying a fuel subsidy program, although the Economy Ministry is against such a measure.
The Mines and Energy Ministry said its staff was meeting with presidential aides and Economy Ministry officials later on Monday to discuss what can be done about fuel prices.
Russia’s invasion of Ukraine, which Moscow calls a “special operation,” has sent global crude prices soaring, adding to double-digit inflation in Latin America’s largest economy ahead of a presidential election in October.
In a radio interview earlier on Monday, Bolsonaro called for the end of a fuel pricing policy in which Petrobras, which holds about 80% of Brazil’s refining capacity, aims for local parity with global prices.
Shares in Petroleo Brasileiro SA, as the company is formally known, fell 4% in early afternoon trading in Sao Paulo, as the benchmark stock index slid nearly 2%.
Brazil’s Economy Ministry declined to comment on potential fuel subsidies. Petrobras and the president’s office did not immediately respond to requests for comment.
Bolsonaro called the rules whereby Petrobras sets local fuel prices based on international energy and currency markets “wrong laws designed a long time ago that cannot continue.”
Last week, he said that Petrobras, which in 2021 smashed its all-time record for annual profit and dividend payouts, thanks to sky-high oil prices, should lower its profit to prevent fuel prices from exploding.
LEADERSHIP CHANGE
Bolsonaro’s criticism adds to pressure on Petrobras, where minority shareholders have pressed for a free hand in setting fuel prices. The company racked up huge losses under previous governments when forced to import and sell fuel at a discount.
Over the weekend, Brazil’s government appointed former Petrobras executive Rodolfo Landim to chair the oil producer’s board, replacing Admiral Eduardo Bacellar Leal Ferreira who told Reuters on Saturday that he planned to step down as chairman of the company “to spend more time with my family.”
Petrobras was planning to seek government approval this week to raise prices at its Brazil refineries, two people close to the discussions told Reuters.
Brazilian newspaper O Estado de S.Paulo was the first to report on Monday that the government was mulling subsidies, saying that a plan to compensate Petrobras for keeping down wholesale prices could be announced this week.
The newspaper, citing unnamed participants in the discussions to design the plan, reported that dividends from Petrobras could be used to fund the subsidies.
Proposals to subsidize fuel prices with government funds have also met resistance from the Economy Ministry, which sees little benefit from a subsidy program that could threaten compliance with key fiscal rules.
Brent crude briefly hit $139.13 a barrel and U.S. West Texas Intermediate (WTI) rose to $130.50 on Monday, the highest levels for the benchmarks since July 2008, as the United States and European allies considered a Russian oil import ban while prospects for a return of Iranian crude to the global market dimmed.
(Reporting by Lisandra Paraguassu and Bernardo Caram in Brasilia; Additional reporting by Gabriel Araujo in Sao Paulo; Writing by Ana Mano and Gabriel Stargardter; Editing by Brad Haynes, Edmund Blair and Paul Simao)
