Brent at $117: Petrobras Forgoes Part of the Diesel Price Surge, but Its Net Result Is Positive
Brent crude reached $117 a barrel the day before the interview, the highest level since May. In an interview with journalist Stevão Limana of CNN Brasil Money, Marcus D'Elia, a partner at Leggio Consultoria, said that in this environment Petrobras is forgoing part of the rise in diesel prices but isn't taking a direct loss on its diesel sales. According to D'Elia, oil prices are expected to keep climbing, and diesel will likely get more expensive for consumers over the coming weeks.
Oil Is Likely to Keep Rising on Uncertainty Over Gulf Supply
D'Elia explains that the $117 figure refers to the December futures contract, which is converging toward current market levels. Dated Brent, the benchmark for physical crude, is already between $120 and $125, which shows that this pricing is already in place across the Atlantic Basin.
In his view, the upward trend is driven by uncertainty over supply from the Gulf, with tensions and attacks flaring up again across the Middle East, in both the Persian Gulf and the Red Sea, as well as the situation involving Saudi Arabia. Given that outlook, D'Elia says prices are headed toward $120.
Petrobras Forgoes Part of the Diesel Price Surge but Takes No Direct Loss on Sales
The pressure on diesel is already there, D'Elia says. The crack spread, the difference between the price of diesel and the price of crude, is very high by historical standards. Combined with higher crude prices, that makes diesel very expensive. In Brazil, the import parity price for diesel is double the price Petrobras charges. In his view, holding the price down in the country is part of the company's pricing policy: diesel has risen from its historical level but remains very low compared with import parity.
D'Elia doesn't see that as a loss for the company. Petrobras's own crude goes into the pricing of its diesel, and its production cost is lower than the selling price, which preserves a margin. "There's no direct loss on Petrobras's diesel sales. What we can say is that it's forgoing gains because it isn't capturing the full rise in international market prices," he said.
On crude sales, he points to the oil export tax, which didn't exist before and came into effect with the war, as part of the subsidy mechanism and the pricing offered to producers and importers. The tax also cuts into Petrobras's gains to some degree. Even so, D'Elia says that while Petrobras is forgoing part of the international rise in diesel and the export tax weighs on earnings from oil sales, the net result is positive for the company.
Diesel Should Rise Moderately in the Coming Weeks, but Inventories Support Supply
Over the next few weeks, D'Elia expects diesel prices to keep rising in the international market, driven by the double effect of higher crude prices and a high crack spread. The price distributors charge in Brazil is a weighted average of diesel bought from Petrobras and imported diesel, which still accounts for about 25% of consumption. As a result, he says, that mix will require an increase for consumers. It shouldn't be a large one, but it could directly affect inflation.
On the risk of shortages, he says Brazil has weathered the war period well and that the country holds diesel and gasoline inventories, though smaller than they should be, a criticism Leggio has consistently made about Brazil's fuel stockpiling policy. "Those inventories should be larger, but the stocks we have today are ensuring national supply, and we don't expect any problems over time, even as the crisis deepens and prices rise," he said.
Elevated Prices Are Likely to Persist in 2026 as Europe Pressures Refined Products
Asked about a possible drop in prices this year, D'Elia considers it unlikely. Futures point to an upward trend, and the backdrop is more complicated: European demand for refined products is very strong and isn't being met by other countries, which is boosting European refining and pushing up refined product prices across the Atlantic Basin. In his view, it's very hard to expect diesel prices to fall over the course of the year, and even harder to expect crude prices to level off, given that there's no positive outlook for easing tensions in the Middle East.
Lower Oil Prices Depend on Easing Tensions and Steady Flows
Even if the conflict cools, D'Elia says it takes time for prices to come down, from about one to two months, and that it only happens once tensions are eliminated. In his view, production volume in the Persian Gulf isn't the main issue today, because it is already balanced: alternative export routes are in place, including the pipeline in Saudi Arabia and shuttle tankers that carry oil out of the Gulf for export.
What keeps prices high, he says, comes down to two factors:
Uncertainty over when the conflict will end
Whether a steady flow of oil can be guaranteed over time
"What's keeping prices at a higher level today is, first, the uncertainty about when the conflict will end and, second, whether a steady flow of oil can be guaranteed over time," he said.
D'Elia adds that the war between Russia and Ukraine continues to pressure the refined products market. As a result, crude could get cheaper while refined products stay above their usual levels.
Watch Marcus D'Elia's full interview on CNN Brasil Money: https://www.youtube.com/watch?v=4zivpnNIZ1Q
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