Russian Diesel Exports Thrive in Brazil Despite Petrobras Price Changes

The influx of Russian diesel into Brazil remains robust, and early indications suggest that volumes will sustain their strength well into the beginning of 2024.

Brazilian importers have already secured contracts for Russian diesel barrels slated for delivery in January. Notably, one source revealed that 100% of their imports are of Russian origin, emphasizing the dominant position of Russian diesel, which constitutes 90% of total imports in Brazil.

In November, Brazil imported 10.5 million barrels of diesel products, and December has seen the arrival of 2.2 million barrels so far. Russia emerged as the primary source of diesel imports into Brazil in November, contributing 7.7 million barrels to the month's total. In December, Russia continued to play a significant role by providing 1.6 million barrels.

The pricing dynamics of Russian diesel imports to Brazil hinge on the delivery window and payment terms, with market sources noting that swifter payments attract steeper discounts. Interestingly, some Russian cargoes embark on the journey to Brazil without a predetermined buyer, floating for five to seven days until a buyer emerges.

While initial hesitancy surrounded the purchase of Russian refined products in early 2023, the largest importers in Brazil are now actively engaging in such transactions. Importers found themselves compelled to turn to more economical Russian imports to maintain competitiveness before a recent domestic price adjustment by Petrobras.

Petrobras, implementing adjustments from December 8, managed to lower wholesale diesel prices by an additional 3.8%, settling at around $1.2057/l. In 2023, Petrobras has slashed wholesale diesel prices by a significant 15.8%. Market sources attribute the latest adjustment to a considerable arbitrage opportunity to Brazil, stating that the arbitrage was open by more than 50 cents/gallon. Petrobras made this adjustment to align its prices with the prevailing market conditions.

Despite the price adjustment by Petrobras, market sources indicate that trading Russian barrels remains a more cost-effective option. Petrobras barrels will be prioritized, and Russian barrels will be utilized to supplement any deficiencies. Market players assert that companies will capitalize on Petrobras' competitive pricing while it lasts, emphasizing the continued preference for Petrobras barrels over alternative sources.

Market participants in Brazil are also anticipating the possibility of further price reductions by Petrobras in January. While the arbitrage remains, especially for diesel, the market anticipates a potential tax-related factor that might lead to another round of price reductions in January.