Flashpoint: Could Oil and Gasoline Trends Further Boost Ethanol and Sugar Prices in 2022?

Import parity is the reference for gasoline pricing in Brazil. It connects international oil and gasoline prices to Brazilian ethanol prices and, ultimately, to world sugar prices.

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On March 10 this year, Petrobras, the dominant supplier in Brazil’s motor fuel market, announced increases of 19% and 25% to its ex-refinery prices of gasoline and diesel, respectively. Before that, the prices had remained unchanged since mid-January 2022. Between then and Petrobras’s announcement, oil prices had risen 29% in USD terms and 17% in BRL terms.

Looking ahead, the key drivers of the import parity price of gasoline will be international oil and gasoline prices and the BRL/USD exchange rate. International oil and oil derivatives prices remain volatile, as the market struggles to respond to the consequences of the Russia-Ukraine war. The BRL/USD exchange rate is also volatile, as the market weighs the effects of interest rate trends in Brazil and the US, plus the upcoming election in Brazil.

Meanwhile, skyrocketing diesel prices suggest that ex-refinery gasoline prices may have to rise significantly in order to persuade refiners to dedicate sufficient capacity to gasoline production. This is especially the case in the US, which supplies the majority of Brazil’s gasoline imports, where the seasonal peak in demand during the US summer ‘driving season’ is approaching.

All of this points to upside risks for world oil and gasoline prices during 2022, which could spill over into the Brazilian ethanol and world sugar markets.