March 14, 2008 / 4:28 PM / 10 years ago

Brazil flex-fuel cars help tame gasoline prices

RIO DE JANEIRO, March 14 (Reuters) - A massive new fleet of flex-fuel cars in Brazil has prevented state oil company Petrobras (PETR4.SA)(PBR.N) from charging more for gasoline despite record world oil prices, the company said on Friday .

Petrobras downstream director, Paulo Roberto Costa, said consumers in Latin America’s largest country would stop buying gasoline and switch to cheaper ethanol if the price of the fossil fuel was raised to match world levels after being frozen since late 2005.

“It doesn’t make sense hiking the price of gasoline abruptly if it will cause me a bigger loss of the market than what is already happening today,” he told reporters. “It’s possible that this year we’ll sell more ethanol than gasoline in Brazil.”

Traditionally, Petrobras uses an argument that prices have not settled at a new threshold level yet and it cannot adjust key fuel prices during market turbulence. Costa echoed this stance, saying Petrobras believed oil prices of $110 a barrel had “a speculative element which doesn’t look sustainable”.

While it keeps the domestic price of diesel and gasoline unchanged, the oil giant, which also accounts for practically all refining in Brazil, regularly has been adjusting prices of other oil products like naphtha and aviation fuel.

Costa said flex-fuel vehicles, which can use any mixture of ethanol and gasoline or each of these fuels alone, already accounted for 20 percent of Brazil’s car fleet, while the number of single-fuel cars on the road was falling gradually.

Flex-fuel vehicles account for nearly 90 percent of all new car sales in Brazil.

Costa said Petrobras will keep evaluating the fuel market and may adjust prices when it has a more solid analysis, “but in the short term there is no such position”.

Mines and Energy Minister Edison Lobao said earlier this week the government will do its best to keep gasoline prices steady as a hike would boost inflation. (Reporting by Rodrigo Gaier, writing by Andrei Khalip; Editing by David Gregorio)

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