Brazil Diesel Imports Stall as Petrobras Price Gap Hits Record

A sharp rally in international diesel prices has pushed the gap between Brazil's domestic fuel prices and import parity to record levels, prompting independent importers to hold back on purchases, industry executives said.

The fuel importers' association Abicom reported that Petrobras' diesel prices on Tuesday stood 3.89 reais ($0.79) per liter below import prices, even as domestic refineries operate near their output ceiling.

"Brazilian refineries will not produce more because they are already operating close to capacity," said Abicom President Sergio Araujo.

Brazil meets most of its diesel demand through domestic production but depends on imports for roughly a quarter of consumption. When Petrobras buys fuel at higher international prices than it charges locally, the squeeze on margins weakens the incentive for other importers to bring diesel into the country.

Since the start of the U.S.-Israeli conflict with Iran, Petrobras has worked to keep diesel prices low by increasing domestic supply and taking part in subsidy programs launched by President Luiz Inacio Lula da Silva to curb inflation ahead of October's election, in which he is seeking another term.

International oil prices have climbed steeply in recent weeks. Brent crude settled above $108 a barrel on Tuesday, up from around $93 at the start of the month, while U.S. diesel futures hit a record high amid Middle East conflicts and export restrictions from Russia.

Localized disruption

The diesel rally coincides with concerns in Rio Grande do Sul, where the state's agriculture federation, Farsul, told fuels regulator ANP this week that it had received reports of restrictions and delays in diesel deliveries to farmers as planting of the summer crop begins.

Rio Grande do Sul is supplied almost entirely by Petrobras' Refap refinery. According to one person close to fuel distributors, customers from neighboring states that rely more heavily on imported fuel have been seeking diesel there, potentially straining local supply.

ANP said diesel deliveries are proceeding normally and that it has not identified a risk of supply shortages in the state. Petrobras said its deliveries are proceeding as planned and that all contracted volumes are being supplied.

The situation echoes conditions seen earlier this year, with localized shortages and logistical bottlenecks, though widespread fuel shortages remain unlikely.

"It is a tighter market, but there is no concern about widespread supply disruptions," said Bruno Cordeiro, a market intelligence specialist at StoneX.