Forecasting Brazilian gasoline demand in the second half of 2022 is proving to be complex for importers and distributors amid an unstable regulatory environment and fierce political tensions around the energy sector less than six months ahead of elections.
Producers and distributors are already prepping for potential regulation changes around essential issues, such as taxation, ahead of the October national elections. This includes closely monitoring a recent bill passed by the lower congressional house that caps the rate of the state-level, VAT-like tax ICMS on fuel and electricity at between 17pc and 18pc. If passed by the senate and sanctioned by the president, the measure could boost gasoline demand — which is the most heavily taxed fuel in most Brazilian states — by making it more competitive with hydrous ethanol. In Sao Paulo state, the ICMS levy on ethanol is 13.3pc compared with 25pc on gasoline.
The proposed legislation faces a difficult path in the senate, where President Jair Bolsonaro's coalition has less influence than the lower chamber. If approved, the constitutionality of the cap, which state governors say would decimate public coffers, would almost certainly be brought before the country's high court.
A recent decree establishing a national policy on climate change is also limiting visibility on motor fuels supply and demand. The project creates the basis for the country's low carbon market, covering all sectors of the economy and, in the view of some participants, setting up a potential collision with the country's existing domestic biofuels policy RenovaBio, which currently guides decision-making among ethanol producers and fuel distributors.
Pricing puzzle
Fuel supply planning is also being strained by a protracted leadership crisis at state-controlled Petrobras. Earlier this month, the country's mines and energy ministry announced it was nominating finance ministry veteran Caio Mario Paes de Andrade to replace Jose Mauro Ferreira Coelho, who took over as Petrobras' chief executive in mid-April.
The swap, the third inspired by Bolsonaro's anger over fuel prices, was accompanied by warnings that the country is facing a potential diesel shortage. The situation prompted the mines and energy ministry to recently declare that S10 diesel inventory levels must meet demand for up to 38 days, an increase from 30 days of supply first put in place when monitoring started in March of this year.
Gasoline supply has not been a major theme in the current debate, but ensuring that domestic demand is met during a period of intense market volatility remains a major issue for fuel distributors and importers who, starting in April, resumed negotiations for foreign cargoes.
On 30 May, Petrobras announced that the mines and energy ministry had recommended the company be included in a privatization portfolio managed by the finance ministry. Acceptance into the program, known locally at PPI, would allow for the start of studies on the actions necessary to limit the government's controlling stake in the company.
