January 9, 2020 / 6:02 PM / a month ago

Brazil weighs policy to cushion impact of oil price spikes in fuel costs

RIO DE JANEIRO/BRASILIA, Jan 9 (Reuters) - The Brazilian government is studying a mechanism that would cushion the potential impact of spikes in international oil prices on local fuel prices, energy minister Bento Albuquerque said on Thursday.

The recent surge in oil prices, following events in Iraq, caused Brazil’s President Jair Bolsonaro to call a meeting this week with Petrobras and energy ministry officials to discuss the situation.

Oil prices initially jumped after a U.S. drone attack in Iraq killed Iranian military commander Qassem Soleimani and an Iraqi militia leader on Friday, on concerns escalating tensions in the Middle East may disrupt oil supplies. Later, prices retreated as tensions eased here between Iran and the United States.

Despite that fall in oil prices, the idea of a possible cushioning mechanism is still on the table.

One of the possibilities, Albuquerque told reporters, would be to use government proceeds from oil exploration royalties to form a fund that would be used to prevent higher oil costs from being passed on to fuel prices in Brazil.

“We are looking at the royalties, those things that we as oil exporters see as possibilities to acumulate reserves that could compensate for unexpected increases in oil prices,” said the minister.

It was not clear if the federal government would sacrifice its share of the royalties charged to oil companies operating in the country and earmark that money for a new fund.

Albuquerque said the studies would continue despite the apparent easing of tensions in the Middle East.

“We should be prepared for the future, so Brazil would not suffer from some international crisis,” he said.

Reporting by Marta Nogueira e Gabriel Ponte; Writing by Marcelo Teixeira; Editing by Bernadette Baum

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