Brazil's Petrobras reworks fuel prices to ease costs, tame volatility

Brazil's state oil company Petrobras approved a new fuel pricing policy for gasoline and diesel that will sharply lower costs for motorists, it announced on Tuesday, ditching a more market-based policy in favor of greater flexibility to smooth price swings.

Brazil's state oil company Petrobras approved a new fuel pricing policy for gasoline and diesel that will sharply lower costs for motorists, it announced on Tuesday, ditching a more market-based policy in favor of greater flexibility to smooth price swings. President Luiz Inacio Lula da Silva celebrated the new policy for Brazil's millions of motorists in a post on social media later on Tuesday, declaring it "a victory for the people."

The new pricing policy scraps a so-called fuel import parity policy that more closely aligned prices at the pump with the international oil market and foreign exchange rates, but Lula, as the leftist leader is known, had promised to change that to make fuel cheaper. Under the new Petrobras pricing strategy, gasoline and diesel prices will come down by nearly 13% starting on Wednesday, while prices for liquefied petroleum gas, used widely for heating and cooking, will drop more than 21%, according to a company filing.

Even so, Petrobras shares rose as much as 5% following the announcement before ending up 2.5%, making it one of the day's top gainers on Brazil's main stock index. In a research note, JPMorgan described the new pricing policy as "more friendly than investors expected."

Chief Executive Jean Paul Prates, tapped by Lula to lead Petrobras in January, told CNN Brasil the company will still adjust prices based on market factors. But he emphasized price tweaks will be rolled out more slowly, compared to especially volatile swings under the old policy in 2021 and 2022. "We'll certainly have more defenses against volatility than before," he said.

Earlier on Tuesday, Prates told reporters the new pricing framework will still safeguard the company's bottom line since fuel prices would not dip "below profitability." Mines and Energy Minister Alexandre Silveira echoed the sentiment.

"By no means will Petrobras cease to be attractive to investors," he said. The new policy came under criticism from some quarters as too opaque.

"The announcement was very confusing," said Adriano Pires, a one-time pick by Bolsonaro to lead Petrobras even though he never took office. "Transparency in price-setting is over." The previous pricing policy was adopted seven years ago by conservative former President Michel Temer. His far-right successor, Jair Bolsonaro, maintained it although he criticized the model when prices rose.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)