Rising Gasoline Prices Defy Global Oil Rout: Corporate Brazil

Brazilians are paying more to fill their gas tanks even as oil’s 49 percent rout in the past year drives down prices from New York to Tokyo.

Gasoline in Sao Paulo climbed 9.9 percent in the past three months to 3.26 reais a liter, or about $4.50 a gallon, at the start of February, the most recent figures available, according to data compiled by Bloomberg. The price fell 31 percent to $2.06 a gallon in the U.S. and 23 percent to $5.51 in Europe in the period.

“We’re swimming against the tide,” Pedro Paulo Silveira, chief economist at brokerage TOV Corretora, said in a telephone interview from Sao Paulo. “The fact is that consumers are in a complicated situation in Brazil.”

Brazilian consumers and companies can expect to pay more for all energy this year, from natural gas to electricity. Petroleo Brasileiro SA, the state-run oil producer embroiled in a corruption probe, is keeping fossil-fuel prices high as it tries to bolster cash flow.

The worst drought in eight decades has pared hydropower output and will contribute to electricity costs at home and in factories rising by as much as 25 percent this year, Brazilian Energy Minister Eduardo Braga said in an interview with Globo News last month. The government announced an increase in taxes on fossil fuels in January, and said it’s cutting subsidies to electric utilities as it tries to shore up fiscal accounts.

Rising energy prices threaten to weigh on an economy that’s already forecast to shrink by 0.4 percent in 2015, according to a central bank survey released yesterday. Higher costs can pare profit margins at power-intensive companies like steelmakers and car manufacturers, make it more expensive for farmers to harvest their crops and prompt consumers to rein in spending.

Farmers Affected

Anilson Rotta, a soybean farmer in the Midwestern Brazilian state of Mato Grosso, said he’s already feeling the impact of higher prices. The diesel he uses to harvest his crop has increased 20 percent since September, cutting into his profits.

“Costs are climbing at the same time soybean prices are declining,” he said in an interview on his farm. Soybean futures in Chicago have fallen 27 percent in the past year.

Fuel Price Rise

Petrobras, as the Rio de Janeiro-based oil producer is known, raised gasoline and diesel prices by 3 percent and 5 percent, respectively, in November after previously importing the fuel and selling it for a loss in the local market.

West Texas Intermediate for March delivery dropped 96 cents, or 1.8 percent, to $51.18 a barrel at 11:38 a.m. on the New York Mercantile Exchange.

The government, which controls Petrobras with more than half its voting shares, has so far allowed it to keep prices high even as inflation runs above the central bank’s target range. The company said late last month that it cut planned investments and may halt dividends to preserve cash amid an investigation into a scheme in which executives are alleged to have accepted bribes from a cartel of builders.

“There are two huge forces to this discussion: One is saving Petrobras and the other is controlling inflation,” Alexandre Garcia, associate director for corporates at Fitch Ratings Ltd., said in an interview at Bloomberg’s office in Sao Paulo. Consumer prices rose 11 percent in January, according to the IPCA CPI index.

If inflation “runs wild” there’s room for cutting gasoline prices, Garcia said. “But at this point, I think that saving Petrobras is winning.”

The Energy Ministry and Petrobras didn’t respond to telephone and e-mail requests for comment.

Energy Rationing

Possible energy rationing later this year because of low hydroelectric reservoirs threatens to add to costs for companies and further hurt the economy. Banco Santander Brasil SA said in a Feb. 4 report that the risk of rationing is “high” and could shave as much as 2 percentage points off of economic growth. Steelmakers and industrials would be hardest hit, the bank said.

“Brazil dependence on hydroelectric power is a factor of pressure,” TOV’S Silveira said. “Costs will be passed on to customers.”

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