Brazil's Petrobras to ask government leaders to support wholesale fuel price increase, as its margins are being squeezed by the rising cost of crude, while prices at the pump stay flat, source says

Bdebbie Garcia

LOS ANGELES , October 25, 2011 (Industry Intelligence) – On Thursday, Petrobras SA executives will ask government representatives on its board to support an increase in wholesale fuel prices, said a source at the company, reported Reuters on Oct. 24.

The state-owned oil company has a policy of keeping its wholesale fuel prices fixed on the domestic market, but its profits have been squeeze by the rising cost of crude while prices at the pump have stayed flat, said the unidentified source.

At Thursday’s board meeting, the executives also will ask officials to support a cut in the excise tax known as the CIDE. Cutting the tax would offset the requested increase in wholesale fuel prices, thereby leaving prices at the pump unchanged, Reuters reported.

The Rio de Janeiro-based company’s wholesale prices for gasoline and diesel last changed in 2009, when they were reduced.

A spokesperson from Petrobras declined to comment.

The Brazilian government already cut the CIDE tax in September to make up for its lowering the mandated amount of ethanol in gasoline to 20% from 25%, reported Reuters.

Petrobras has been forced to import more gasoline because of strong fuel demand and higher sugarcane ethanol prices, further eroding the company’s profits.

Gasoline imports were rare for Brazil as recently as 2009 but are expected to rise again this year due to the lower amount of ethanol mixed into the fuel.

Reducing the CIDE tax would mean less revenue for the government, which is trying to trim spending, Reuters reported.

Petrobras is the largest integrated energy company in Brazil and one of the largest in Latin America. Among its activities are the exploration, production, refining, processing, trading and transporting of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities, according to its website.

The primary source of this article is Reuters, London, England, on Oct. 24, 2011.

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