Brazil Diesel Prices Increase Slightly Amid Global Supply Chain Issues

Santos (Brazil): In April 2024, Diesel prices in Brazil experienced a slight incline, reaching BRL 5.89 per liter, with a modest monthly increase of BRL 0.04 (1.0%) in Rio de Janeiro. This price rise was influenced by a combination of domestic and international factors, highlighting the interconnected nature of the global energy market.

One significant development was Petrobras, Brazil's state-run oil company, loading Diesel from India onto a Suezmax crude oil tanker. This marked the first such shipment from India in over a year, despite a month-long delay due to prolonged scrubbing and cleaning processes. This logistical challenge underscored the complexities involved in transportation.

Concurrently, Brazil emerged as a key buyer of Russian Diesel exports amid Western sanctions on Russian oil products, with freight costs significantly impacting delivery timelines. The larger shipments from India and Russia are expected to alleviate downward pressure on the oversupplied Asian market and potentially establish a price floor. However, operational complexities and freight dynamics, particularly the 30% cheaper freight costs for Suezmax tankers on East-to-West routes compared to clean product long-range 2 (LR) vessels, remain challenges for sustainable Diesel transportation.

Despite increased crude oil production by Petrobras, total exports fell by 4.4% year-on-year, influenced by changes in market dynamics and the conflict in the Middle East impacting export flows. Constraints in domestic refining capacity necessitated increased imports, further influenced by global oil prices and high freight charges. Brazilian imports of Russian Diesel surged, driven by Western sanctions on Russian oil products, adding to the supply-side pressures.

Demand in Brazil saw a slight uptick in April, stabilizing at a moderate level. This increase was attributed to the onset of the harvest season, where Diesel is crucial for agricultural machinery, alongside heightened economic activity and rising industrial production. The Brazilian Real depreciated by 2.70% against the USD in April, further affecting Diesel prices.

Looking ahead, Diesel prices in Brazil are forecasted to follow a fluctuating trend. In May, a 1.5% increase is anticipated due to a surge in Diesel demand during the approaching harvest season for key agricultural products such as soybeans and corn. Disruptions and delays in Diesel imports could tighten supply, leading to upward price pressure. In June, however, a 1% decrease is projected, as Diesel demand typically falls outside peak harvest seasons. Additionally, significant decreases in global crude oil prices or increased domestic refining capacity could further lower Diesel prices.

Overall, the slight incline in Diesel prices in Brazil during April was driven by global supply chain dynamics, freight costs, and domestic demand trends. As Brazil navigates these challenges, the interconnectedness of the global energy market will continue to play a crucial role in shaping Diesel prices and supply dynamics.