BRASILIA (Reuters) -Brazilian President Jair Bolsonaro on Monday threw his weight behind measures to tamp down domestic fuel prices after the Ukraine conflict sent oil prices to their highest levels since 2008, adding to pressure on state-run oil company Petrobras.
A government official told Reuters on condition of anonymity that the Bolsonaro administration is studying a fuel subsidy program. The economy ministry is against such a measure, the source said, but is not involved in deciding the pricing policy of Petroleo Brasileiro SA, as the state firm is officially known.
The mines and energy ministry said its staff was meeting with presidential aides and economy ministry officials later on Monday to discuss what can be done about fuel prices.
The economy ministry declined to comment on potential fuel subsidies. Petrobras and the president’s office did not immediately respond to requests for comment.
Russia’s invasion of Ukraine, which Moscow calls a “special operation,” has sent global crude prices soaring, adding to double-digit inflation in Latin America’s largest economy ahead of a presidential election in October.
Petrobras shares fell almost 8% in Sao Paulo, as the benchmark stock index slid around 3%.
In a radio interview earlier on Monday, Bolsonaro called for the end of a fuel pricing policy in which Petrobras, which holds about 80% of Brazil’s refining capacity, aims for local parity with global prices.
Bolsonaro called the rules whereby Petrobras sets local fuel prices based on international energy and currency markets “wrong laws designed a long time ago that cannot continue.”
Last week, he said that Petrobras, which in 2021 smashed its all-time record for annual profit and dividend payouts, should reduce its profit to soften the blow of soaring oil prices.
Bolsonaro’s criticism adds to pressure on Petrobras, where minority shareholders have pressed for a free hand in setting fuel prices. The company racked up huge losses under previous governments when forced to import and sell fuel at a discount.
Over the weekend, Brazil’s government appointed former Petrobras executive Rodolfo Landim to chair the oil producer’s board, replacing Admiral Eduardo Bacellar Leal Ferreira who told Reuters on Saturday that he planned to step down as chairman of the company “to spend more time with my family.”
The pressure to hold prices down was a factor in Ferreira’s decision to step down, two people close to pricing discussions told Reuters. Petrobras was planning to seek government approval this week to raise prices at its Brazil refineries, the people said.
Brazilian newspaper O Estado de S.Paulo was the first to report on Monday that the government was mulling fuel subsidies, saying that a plan to compensate Petrobras for keeping down wholesale prices could be announced this week.
The newspaper, citing unnamed participants in the discussions, reported that dividends from Petrobras could be used to fund the subsidies.
Proposals to subsidize fuel prices with government funds have met resistance from the economy ministry, which sees little benefit from a subsidy program that could threaten compliance with key fiscal rules.
Brent crude briefly hit $139.13 a barrel and U.S. West Texas Intermediate (WTI) rose to $130.50 on Monday, their highest levels since July 2008, as the United States and European allies eyed a Russian oil import ban and prospects for a return of Iranian crude to the global market dimmed.
(Reporting by Lisandra Paraguassu and Bernardo Caram in Brasilia; Additional reporting by Marcela Ayres in Brasilia and Gabriel Araujo in Sao Paulo; Writing by Ana Mano and Gabriel Stargardter; Editing by Brad Haynes, Edmund Blair, Paul Simao and Marguerita Choy)