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Specialist In Regulation And Petroleum And Derivatives Market Which Are The Most Impactful Areas Are Refineries, The PPI Issue And Decrease In Dividends
Most likely you, the reader, remember the movie with Bill Murray called Groundhog Day; the movie in which his character gets trapped in a time loop that makes him relive the same day over and over. This is the current economic scenario when we talk about the petroleum and derivatives market in Brazil.
Pushing aside partisanship and ideological biases, and performing a cold analysis of market behavior, it is clear that the behavior demonstrated since the declaration of results for president, confirming Lula’s return to central power, is one of agitation and uncertainty about the future presented on an extremely near horizon. At least, this is what has been observed when looking at the movements of the petroleum markets, especially those related to Petrobras.
Degree Of Uncertainty Regarding Petrobras
The high degree of uncertainty regarding the future of this specific segment finds support in past occurrences in other Workers’ Party governments regarding their scandals, which impact Petrobras’ stocks, which recorded an accumulated loss of at least 10.00% in the value of its shares (PETR3, PETR4) since the confirmation of the victory of the former President of the Republic.
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The rise in oil prices could ensure an extra revenue of R$ 100 billion for the Federal Government, indicates a recent economic study.
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Naturgy begins an investment of R$ 1.6 million to expand the gas network in Niterói and benefit thousands of new residences and businesses.
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A major turn in the Justice system suspends tax increases and directly impacts oil and gas companies in Brazil by affecting costs, contracts, and financial planning, leaving uncertain what could happen to the sector if these costs had increased.
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Brava Energia begins drilling in Papa-Terra and Atlanta and could change the game by reducing costs in oil while increasing production and strengthening competitiveness in the offshore market.
From all indications, the future government already has a possible name to assume the position of president of the state-owned company and is already considering the name of Jean Paul Prates, former alternate of Fátima Bezerra and current senator for Rio Grande do Norte, for this position. Jean Paul Prates is a relatively unknown figure in Southeastern Brazil, but very well-known in the State of Rio Grande do Norte, where he has a long career as a consultant in the fields of energy and petroleum, including holding trusted positions in both the ANP and Potiguar secretariats.
Main Concerns Of The Brazilian Petroleum Market
But what troubles the market at this moment does not refer to the technical capacity of its potential “future” president, but rather the interventionist thinking that accompanies the party that intends to appoint him as president. Such thinking has already manifested to the market, albeit timidly. Among his possible actions as the head of the state-owned company, the most impactful can be listed, which might make the market feel like living the plot of the movie with Bill Murray. They are:
- “Balanced” repurchase of privatized refineries;
- Upgrade and expansion of refineries in expansion;
- Replace the PPI with regional market price;
- Reduce dividends to invest more;
It is worth noting that the pricing policies of the state-owned company are based on market practices that aim to supply the market by balancing prices “pari passu” with the costs involved in importing fuels, especially diesel oil. Because unlike what is always shouted by politicians, Brazil, due to the deficiency in the productive capacity of its refineries, cannot refine all the oil it produces, and therefore imports about 60.00% of all the diesel oil consumed in the country.
Thus, by revoking the PPI rule and equating prices regionally, it could demonstrate a practice of interventionism in the market. And thus the golden rule of the market would be applied, making competition unattractive given its low profitability or opportunity for gain. And, very likely, it would result in a scarcity of products in the market, reflecting in the future on prices that will be pressured to rise because there will be high demand and low supply.
Another negative effect of this type of management concerning the internal policies of the state-owned company can undoubtedly have harmful effects, especially related to the market positioning and valuation of the company. Although Petrobras is treated as a state-owned enterprise, it is in reality a mixed-economy company that has shares in major stock exchanges around the world, and therefore its investors aim for profitability.
Obviously, knowing that its main shareholder and controller intends to reduce its profitability in order to maintain its populist policies, naturally its shares may lose value, and consequently, its stocks would become unattractive.
For some, these actions were surprising, while for others, they are completely predictable actions. We will await the unfolding of events with great caution.
*Antonio Ticianeli is a chemical engineer, specialist in regulation and the petroleum and derivatives market (This article does not necessarily represent the opinion of Click Petróleo e Gás)
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