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Big Oil is trumping the…

Petrobras Warns Diesel Shortage Is Looming Over Brazil

Brazil's state oil major Petrobras has warned the government that the country could slip into a diesel shortage this year unless the company is allowed to sell the fuel at market prices.

According to a Reuters report, Petrobras had told the Brazilian government that it will be difficult for it and for other fuel importers to source import diesel amid the worst deficit of the fuel in 14 years.

"If there is no signal of market prices ahead, there is material risk of a diesel shortage during the peak of demand during the harvest season, affecting Brazil's GDP," Petrobras said in a presentation titled "Fuels: challenges and solutions."

According to the company, the shortage is most likely to occur during the third quarter, which coincides with the soybean harvest season.

"Global diesel inventories are far below the historic average," Petrobras said in the presentation. "Petrobras alone cannot solve the global rise of energy prices."

The Brazilian government has been pressuring Petrobras to keep fuel prices lower than international benchmarks dictate as President Jair Bolsonaro seeks re-election. Petrobras is also a target for his rival, former president Ignacio Lula da Silva.

"If Petrobras stops selling diesel at international prices for more than two or three weeks, there is a chance pumps will run dry," Reuters quoted an unnamed top executive from a diesel production firm as saying.

In an attempt to keep fuel prices from soaring even higher, the Brazilian president has so far this year replaced the chief executive of Petrobras twice, with the second occupant of the position, Jose Mauro Coelho, only staying in it for a few months.

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The latest replacement, per a Financial Times report, is Caio Mario Paes de Andrade, a member of the economy minister's team and an entrepreneur. According to analysts, he is unlikely to try and enforce sub-market prices on Petrobras.

By Irina Slav for Oilprice.com

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