May 30, 2018 / 4:17 AM / 6 months ago

Brazil's president mulls scrapping Petrobras market-based fuel pricing - source

BRASILIA (Reuters) - Brazil’s President Michel Temer may scrap a market-based pricing mechanism used by state-run oil firm Petrobras (PETR4.SA) and revert to selling all fuel below costs after a trucking strike that almost paralysed the nation, a government source told Reuters on Tuesday.

A Petrobras gas station closed due to the truck owners strike is pictured at Embu das Artes, Brazil May 28, 2018. REUTERS/Leonardo Benassatto

Talk of temporarily lowering prices on just diesel to end the havoc the nine-day strike brought on Latin America’s largest economy sent Petrobras shares plunging 15 percent on Monday.

Truckers are protesting a 50 percent increase in diesel prices under the nearly one-year-old Petrobras policy of almost daily adjustments following international prices.

The source, who asked not to be named because he was not authorized to speak publicly on the matter, said the pricing policy worked well when oil prices CLc1 LCOc1 held steady for years at $40-50 a barrel, and the Brazilian currency BRBY BRL= remained stable against the dollar.

But oil has recently surged to $70-80 a barrel boosted by plummeting Venezuelan production, strong global demand and looming U.S. sanctions on Iran. Meanwhile Brazil’s currency has weakened 11 percent this year on political uncertainty.

“Without that (stability), we have a problem. We need to study alternatives,” the official said. He said talks on the issue have already begun between the government and Petrobras.

A spokeswoman for Petrobras chief executive officer Pedro Parente declined to comment.

Temer acknowledged in a television interview on Tuesday that he was open to reviewing the pricing policy.

“Petrobras has recovered in these two years. It had been in a disastrous situation for a long time, and we did not want to change the company’s policy,” Temer told government broadcaster TV Brasil. “We can re-examine the policy, though with great care.”

On Sunday, moving to settle the truckers strike, Temer announced tax cuts and subsidies to reduce domestic diesel prices by 0.46 real per litre, or about 13 percent of the current price at the pump, freezing them at that level for 60 days.

The prospect of government interference in Petrobras pricing policy sent its share prices plummeting on Monday. That slide added to losses a week earlier that reduced the stock price by nearly one third, though shares rebounded 14 percent on Tuesday to close at 19.30 reais.

The government official said initial talks had begun between Mines and Energy Minister Moreira Franco and Parente, architect of the company’s recovery.

Parente has resisted change, but has appreciated the need for greater predictability in price adjustments, the official said.

(This version of the story corrects third paragraph to reflect that daily pricing adjustments began nearly one year ago, not two years ago)

Reporting by Lissandra Paraguassú; Writing by Anthony Boadle; Editing by Kenneth Maxwell

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