The sharp fall in Brazilian gasoline consumption is prompting risk-adverse independent retailers and traders to considerably reduce import operations and rely more on domestic output.
Yet Brazilian refineries' increased contribution to the country's supply pool will not offset a drop of up to 70pc in Brazil's total domestic demand, as Petrobras started to reduce the utilization rate at its refineries from 78pc to 74pc in March.
Demand for import cargoes dropped over the last two weeks of March as independent market participants lack visibility into future domestic demand as the coronavirus pandemic cripples world economies. According to a survey of fuel retailers, traders and fuel brokers conducted by Argus this week, demand for E27 gasoline fell by 50-70pc in the second half of March compared with the first half. The same survey conducted during the week ended 27 March found demand dropped by between 30-50pc from demand during the first half of March.
The steep decline in demand is quickly spreading throughout the gasoline supply chain in Brazil, with fuel retailers BR and Raizen announcing they will scale back their ethanol purchases under long-term contracts to account for the quick drop in demand. Anhydrous ethanol is blended at a rate of 27pc into gasoline.
Price volatility in international markets also deterred gasoline import operations in the past fortnight. Differentials for Brazilian gasoline to Nymex RBOB future contracts varied widely in the last two weeks amid a collapse in US demand, pressuring both both physical and paper markets. The Argus index for full cargoes of gasoline delivered to Brazil reached its highest level since Argus started to assess this market in January 2018, as differentials to the Nymex RBOB contracts due in May switched to premiums ranging from 3¢-4¢/USG in the week ending 20 March.
On the supply side, the steep drop in refinery output caused by deteriorating demand could pressure refinery runs lower and hamper refinery operations, despite a relatively higher share of domestic product in Brazil's fuel supply. An oil engineering consultant told Argus that Brazilian refineries reached the lowest end of the optimal range for in 2018 when a flurry of imports prompted the ratio to drop to a ten-year low of 75pc. Keeping the utilization rate below this threshold for an extended period causes strain in the refining process and can lead to refinery stoppages. Petrobras did not confirm this information.
According to data from Brazil's oil regulator ANP compiled by Argus, Brazil's refinery utilization rate fell from 83pc to 78pc from January to February. Petrobras told Argus that the utilization rate at its refineries was 74pc in March and could fall further in April and May. Petrobras accounts for 99pc of Brazil's refining capacity.
Brazil's gasoline supply glut has prompted Petrobras to actively seek to ship cargoes abroad.
Last week the company placed options on at least two vessels, Elandra Redwood and Ardmore Sealancer, to ship two gasoline cargoes to the US Atlantic coast, with transatlantic options.
