Gasoline Is Cheap, Priced at R$ 1.95 at Refineries; Federal Tax Has Been Fixed for Years but Does Not Prevent Constant Fuel Price Increases

Federal Tax on Gasoline Price Has Been Fixed for Two Years, But ICMS Regulated by Governors Is Almost Twice What It Was at the Beginning of January

The price of gasoline in Brazil is experiencing rampant spikes even though the federal tax has been fixed for years. President Jair Bolsonaro, in a conversation with supporters at the Palácio da Alvorada, stated that gasoline in Brazil is “cheap,” given that the fuel “costs R$ 1.95 at the refinery.” After all, how is it possible for Brazilians to pay so much for this fuel?

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Federal Tax Has Been Fixed for Years but Does Not Prevent Gasoline Price Increases

“Gasoline is cheap. No, it’s cheap… It costs R$ 1.95 at the refinery. By the time it reaches the pump, well…” said the head of the executive branch. On the other hand, at the gas stations, the last weekly average price for the liquid provided by the National Agency of Petroleum (ANP) was R$ 5.866.

“You can see that there is a federal tax on gasoline. It’s called PIS-Cofins. It has been the same fixed amount since I took office. For two and a half years, I haven’t increased anything. Now, the ICMS is almost double what it was at the beginning of January. ICMS is set by the governors. I’m not… I am open to criticism, no problem, but let’s criticize with reason,” the president said in response to criticisms about the rising fuel prices.

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After a 3.3% increase made by Petrobras last week, the price of gasoline leaving the refineries rose from R$ 2.69 to R$ 2.78. The oil company takes into account the price of 73% of a liter of gasoline, considering that in Brazil, alcohol is added to the fuel before it is sold.

For better understanding, a liter of gasoline that goes into the consumer’s tank is composed of 73% gasoline and 27% alcohol. Thus, Petrobras is responsible for R$ 1.97 of the cost of a liter of gasoline sold at gas stations.

According to the state-owned company, the rise in the average price of gasoline follows the increase in international price levels. These serve as a way to ensure that the market does not suffer the risk of a supply crisis.

But in the end, it is the consumer who pays the bill, as other issues must be considered, such as state taxes, mandatory addition of anhydrous ethanol and biodiesel, in addition to the margin charged by distribution and resale.

Petrobras Is Pressured to Lower Gasoline Prices with the Decline in Oil Prices and Ethanol Gains Strength with Parity Above 70% with the Competing Fuel

The price of oil evaporates to less than US$ 66 per barrel this Thursday, its lowest level since May, pressured by concerns about weaker demand due to rising COVID-19 cases, a stronger US dollar, and a surprising increase in gasoline stocks in the US. In Brazil, it pressures Petrobras to lower gasoline prices.

In this circumstance, the market’s expectation of some reduction in gasoline follows the 3.3% increase on August 12, and raises the alarm for ethanol.

Even though today’s drop might be momentary, the plunge is steep enough to return above US$ 70 per barrel in the coming sessions, especially considering that the alert regarding the advance of COVID should continue to create stress among speculators with derivatives.

The hydrated ethanol experienced two strong price increases at plants over the past two weeks and was already at parity above 70% with the competing fuel.

Direct Sale of Ethanol from Plants to Fuel Stations Generates Benefits for Consumers, Who Will Enjoy Low Prices and Quality

The provisional measure approved last week by the Government, which guarantees the direct sale of ethanol from plants to fuel stations, can generate benefits for consumers. This statement comes from Alexande Andrade Lima, president of the Federation of Sugarcane Planters of Brazil (Feplana).

According to Lima, “The expectation is that it will lower the price of ethanol, especially in the industrial units that are close to major consumer centers.” He also states that it guarantees the quality of the biofuel that will go directly from the plant to the stations.

“The sector is well-regulated by the ANP. There is no chance of losing quality at the pumps, as there will be information from the plant that supplied the product, which will ensure quality. The sector is very responsible when it comes to product provenance,” he emphasizes.