Petrobras eyes Brazil price hikes despite political pressure

People walk in front of the Brazil's state-run Petrobras oil company headquarters in Rio de Janeiro
People walk in front of the Brazil's state-run Petrobras oil company headquarters in Rio de Janeiro, Brazil, October 16, 2019. REUTERS/Sergio Moraes//File Photo

Sept 27 (Reuters) - Brazil's state-run oil company, Petrobras (PETR4.SA), is considering raising fuel prices as the prices of some petroleum derivatives are out of line with the global market, Logistics and Sales Director Sales Claudio Mastella said on Monday.

Two people close to the company told Reuters that Petrobras Chief Executive Joaquim Silva e Luna was in Brasilia on Sunday to discuss with government officials how to cushion the blow of rising prices, including possible government subsidies.

Fuel prices have been an explosive issue in Brazil. CEOs of Petroleo Brasileiro SA, as the company is formally known, were recently forced out over price hikes. Petrobras shareholders remain wary of price controls, leading the government to seek other schemes for softening the blow to consumers.

Mastella said that the adjustments would be made within the company's existing pricing policy, which remains unchanged.

Oil prices have been steadily rising for weeks with Brent crude prices at nearly $80, the highest since October 2018.

But the price of Brazilian diesel has lagged the global market by 14%, while gasoline is 10% lower in Brazil based on Friday data, the Brazilian Association of Fuel Importers said.

Petrobras last adjusted diesel prices in July and gasoline prices in August.

"We are looking with more care, with caution, at a possible readjustment," Mastella said.

President Jair Bolsonaro and congressional leaders have insisted that something must be done to ease the impact of fuel prices that contribute to double-digit inflation in Brazil.

Bolsonaro said on Monday he had spoken to the Mines and Energy minister about how to reduce fuel prices, without elaborating.

Petrobras CEO Luna held talks with the Mines and Energy Ministry and congressional leaders over possible ways to lessen the impact of high prices on consumers, without changing the company's pricing policy, two people close to the company told Reuters on condition of anonymity.

Brazil's Mines and Energy Ministry and Petrobras did not immediately respond to request for comment on those talks.

One possibility under discussion would use government proceeds from development in the offshore pre-salt oil play to subsidize fuel prices, the sources said.

That would require congressional approval as the pre-salt fund is already earmarked for education, health care and other programs.

"It makes sense to adopt a price subsidy mechanism that uses money from oil and gas exploration and production itself - funds that grow when global market prices are high," said one of the sources.

Reporting by Marta Nogueira and Rodrigo Viga Gaier in Rio de Janeiro; Writing by Jake Spring Editing by Brad Haynes and Aurora Ellis

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