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Oil at a 7-year high tends to support the rise in gasoline prices and, consequently, margin for mills to raise ethanol prices in Brazil
Last Tuesday (18) saw significant gains for oil prices, which reached the highest level since 2014 due to geopolitical tensions in a context of already tight supply prospects. Brent oil rose 1,2% to close at US$ 87,51 a barrel and the dollar operated almost stable, but above R$ 5,50 on sale. Significant fluctuations in oil and the exchange rate influence the decision of ethanol plants on the mix of the new 2022/23 harvest (April-March) of sugarcane in the Center-South of Brazil, which is still open.
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Concerns in the global market over fears of a possible disruption to oil supplies increased this week after Yemen's Houthi group attacked the United Arab Emirates. Attacks in the Middle East Gulf have increased hostilities between the Iran-aligned group and a Saudi-led coalition.
For Louise Dickson, senior oil markets analyst at Rystad Energy, “The damage to the UAE oil facilities in Abu Dhabi is not significant in itself, but raises the question of further supply disruptions in the region in 2022,” he said. .
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The UAE oil company said it had activated business continuity plans to ensure the uninterrupted supply of products to its local and international customers following an incident at its fuel depot in Mussafah.
Oil prices at this level put the global disinflation process expected for this year at risk
The growing geopolitical tensions between Ukraine and Russia (member of OPEC+) were also 'causes' in the increase in the price of Brent.
In addition, some Organization of the Petroleum Exporting Countries (OPEC) producers are struggling to pump at their allowed capacities under an agreement with Russia and allies to add 400 barrels a day each month.
“Oil prices at this level put the global disinflation process expected for this year at risk. The trend is driven by strong demand in the world's biggest consuming regions, such as the US and Europe, and is happening despite the Fed's signaling of tighter monetary policy ahead. The renewed tension in the Persian Gulf, responsible for about 40% of the world's transoceanic oil, also contributes to pressure on prices”, evaluates XP's analysis team.
Oil at a 7-year high, tends to support gasoline prices and, consequently, margin for plants to increase biofuel in Brazil
For Maurício Muruci, an analyst at Safras & Mercado, “Oil tends to remain high. The mills will have one more reason to concentrate their mix on ethanol”, he says.
The Goldman Sachs bank team even projects that Brent oil prices could exceed R$ 100 a barrel later this year, considering a “surprisingly large deficit”, since there is a demand scenario with the omicron less fragile than the what was initially thought.
The higher oil on the international scene tends to support gasoline prices and, consequently, margin for plants to raise ethanol prices in Brazil, since it is the direct substitute. But, despite a possible increase in demand in this scenario, the consumer also looks at the parity between fuels.
On average in Brazil, ethanol has been at a level above 70% for gasoline for months
Still in this context, amid a drop in international sugar prices in recent months, from US$ 20 to US$ 18 c/lb on the New York Stock Exchange (ICE Futures US), mills can review the mix for the new crop. Safras & Mercado, for example, already projects a targeting of production for sugar of 46% and 54% for ethanol in the Center-South.
The estimate is that the Center-South produces 35 million tons of sugar and exports 33 million tons. Also in the new harvest, 19 billion liters of hydrous ethanol and 12 billion liters of anhydrous ethanol should be produced.
The production of corn anhydrous should stay at 1,8 billion liters and hydrated jump to 2,7 billion liters.
Fuel consumption, however, is still a major concern for plants since the beginning of the Covid-19 pandemic. Ethanol, for example, has had a parity level above 70% compared to gasoline for months, on average in Brazil, according to the National Agency of Petroleum, Natural Gas and Biofuels (ANP).
“Demand is at a minimum. We went back at least 10 years in the demand pattern... So the mills must be a little more focused on sugar, but it is clear that they are not going to come and turn the whole switch to sugar, because they don't want that pressure for part of the government to fall into the mix”, points out Muruci.
