How the U.S. and Brazil Face Gasoline Rises

In the midst of an election year, the governments of Brazil and the United States face a similar problem: high fuel prices, which are fueled by both external and domestic factors and have been frustrating consumers in both countries.

As Bolsonaro runs for reelection in October, Biden and his Democratic party are preparing for midterm legislative elections in November, in which control of the House and Senate in the United States will be redefined.

With the international price of oil on the rise, fueled by the war in Ukraine, sanctions against Russia and the resumption in demand for energy after the most acute phase of the pandemic, Americans and Brazilians, as well as consumers in several other countries, have been paying more. expensive for gasoline.

After reaching record levels this month, the price of gasoline in the United States recorded a slight drop last Sunday (19), with a national average of US$ 4.98 (about R$ 25.56) per gallon (equivalent to 3 .78 liters). Last week, this amount exceeded US$ 5 (about R$ 25.66).

The average price of US$ 4.98 per gallon is equivalent to US$ 1.31 (about R$ 6.74) per liter. This value, although considered high by American consumers, is still lower than the price paid by Brazilians.

According to data released this Tuesday (21) by the ANP (National Agency for Petroleum, Natural Gas and Biofuels), the liter of gasoline at stations in Brazil reached up to R$ 8.99 last week. The lowest value recorded in the survey was R$ 6.17. Diesel reached R$ 8.63.

The average price was R$ 7.23 for a liter of gasoline, slightly below the R$ 7.24 in the previous week. The average price of diesel went from R$6.88 to R$6.90 in the period. These values ​​still do not fully reflect the adjustment announced by Petrobras on Friday (17), of 5.18% in the price of gasoline sold to distributors and 14.26% for diesel.

With the adjustment, the average price of a liter of gasoline sold by Petrobras to distributors will rise from R$3.86 to R$4.06. The final amount paid by the consumer is higher, affected by factors such as taxes and profit margins from other sectors of the supply chain.

reactions

In this scenario, both the Brazilian and American presidents have been reacting to price increases. On Monday (20), three days after the new adjustment, Petrobras announced that its president, José Mauro Coelho, resigned from his position.

Coelho had been fired by President Jair Bolsonaro last month, amid pressure from the government, which is the company’s majority shareholder, to hold back fuel prices and not pass on the international rise to final consumers. But the dismissal still had to be approved by the company’s board of directors.

In the United States, despite the temporary relief this week, consumers already fear another high until the July 4th holiday, when the country celebrates Independence Day and millions of Americans must hit the road. Some analysts project that the average could reach US$ 6 (about R$ 30.78) per gallon.

High fuel prices contribute to the president’s low approval ratings amid fears of recession and inflation of 8.6% in the 12 months through May, the highest level in 40 years.

Biden said that by the end of the week, he would make a decision on whether to temporarily pause a federal gas tax. The idea of ​​pausing that tax, from 18 cents (about R$0.94) per gallon, is one of several measures being considered by the US government, and would need congressional approval.

Last week, Biden criticized some of the biggest oil and gas companies for prioritizing “historic profit margins” and “aggravating the pain” of consumers. He said his team is expected to meet with the chief executives of these companies and seek “an explanation as to why they are not refining more oil”.

But for economist Paolo Pasquariello, a professor of finance at the University of Michigan, the actions of Biden or Bolsonaro should not have much of an impact on lowering fuel prices.

“The truth is that politicians, in general, do not control prices. And they particularly don’t control the price of oil, which is a global commodity”, says Pasquariello to BBC News Brasil. “In democratic countries, there is very little the government can do.”

measurements

“We know this is going to be a difficult summer (in the northern hemisphere),” US Energy Secretary Jennifer Granholm summarized in an interview with CNN over the weekend.

Granholm noted that a federal tax break, if passed, would affect funds for road infrastructure projects and would not impact external factors contributing to the rise, such as supply and refining capacity issues.

Other attempts by the federal government to stem the rise in US gasoline prices have had limited effect. In late March, the White House announced that it would use the country’s strategic oil reserve, releasing up to 1 million barrels a day for six months. But prices remain high.

Several US states, such as Connecticut, Florida, Georgia, Maryland and New York, also recently announced temporary suspensions on state fuel taxes to stem the rise in prices. Others, like Kentucky, have postponed expected tax readjustments.

State taxes vary widely across the country, from less than $0.10 (about $0.50) per gallon in states like Alaska to nearly $0.60 (about $3) in places like Alaska. like Pennsylvania or California.

Despite the national rise in fuel prices, not all US states or cities are affected in the same way. While major metropolises such as Chicago have seen pump prices hover around $6 a gallon, in some rural areas prices are lower than the national average.

At least 17 states are estimated to have an average price above $5 per gallon. The highest value is recorded in California, where the average gallon of gasoline costs US$ 6.40.

The average increase of more than $1.90 per gallon of gasoline over the last year is estimated to represent an extra expense of about at least $172 per month for American households.

As in the United States, in Brazil the consumer price also varies from state to state. While in Bahia the average reached R$ 8.03 per liter of gasoline in the week ended June 18, in Amapá the average price was R$ 6.44.

Factors

The international value of oil is determined by supply and demand, but the final price consumers pay for gasoline, diesel and other derivatives depends on a number of other factors along the supply chain in each country or region.

In addition to barrel prices, exchange rates and taxes, aspects ranging from processing, distribution, transport and proximity to refineries to subsidy policies and environmental regulations, among others, also contribute.

Analyst Lenny Rodriguez, sector manager for Oil Prices and Regional Perspectives at S&P Global Commodity Insights, points out that even before the war in Ukraine, international oil prices were already rising.

In recent months, there has also been a large increase in demand, with the relaxation of restrictions generated by the pandemic in several parts of the world, following advances in vaccination.

“This is the year when many people are taking to the road or flying again”, Rodriguez tells BBC News Brazil, underlining the great demand in the transport sector, despite high fuel prices.

Rodriguez notes that as demand patterns begin to return to normal, refiners are trying to keep up, but there is still an imbalance. He expects that, at least until the end of the year, gasoline and diesel prices will remain above the average of the last five years.

In the US, it is estimated that the price of a barrel of crude oil accounts for about 60% of the value of a gallon of gasoline, and that percentage has increased since last year.

In Brazil, Petrobras details on its website the items that make up the price of gasoline, noting that “other factors enter into the calculation of the value” paid by the consumer. According to Petrobras, in the average value of R$ 7.23 per liter for the week ended on 06/18, R$ 2.84 (39.3%) is the portion that stays with the company.

Distribution and resale account for R$ 1.00 of the total price (13.8%), the cost of anhydrous ethanol, for R$ 0.95 (13.1%), the state tax (which is the ICMS, or on Circulation of Goods and Services) accounts for R$ 1.75 (24.2%), and federal taxes, for R$ 0.69 (9.5%).

Last week, the Chamber of Deputies approved a bill that sets a ceiling of 17% for ICMS on electricity, fuel, telecommunications and public transport. The project must be sanctioned by the president.

But analysts point out that the readjustments in gasoline prices in Brazil are related to the policy of international price parity (PPI), adopted in 2016, through which Petrobras sells oil derivatives, such as gasoline, to distributors, following market values. International.

With this policy, prices are linked to the international price of a barrel of oil and are affected by the variation of the dollar. But, according to the Brazilian Association of Fuel Importers (Abicom), even with the latest adjustments, the values ​​of gasoline in Brazil are still lagged in relation to the international market.

In the Global Petrol Prices ranking, which measured the price of gasoline in 168 countries in the week ended on 06/13, Brazil appeared in 83rd place, with an average of US$ 1.41 (about R$ 7.25), still before the announcement of Petrobras’ readjustment. The United States occupied the 76th position.

According to the survey, the cheapest liter that week was found in Venezuela, at US$0.02 (about R$0.10), and the most expensive in Hong Kong, where consumers paid US$2.99. (about BRL 15.41).

Pasquariello believes that with several central banks around the world raising interest rates to cool their economies, eventually there will be a drop in demand for oil.

“Not for the reasons we’d like, but it’s going to go down anyway, and that’s going to pull prices down.”

Source: BBC News Brazil