After the head of state-controlled oil group Petrobras was ousted by President Bolsonaro earlier in the week, experts fear what could be more of an intervention for the country’s oil industry.
The CEO, Roberto Castello Blanco, resigned at the head of Petrobras coming after a conflict with the President over rising energy prices. Fearing that price increases in diesel would lead to protests Bolsonaro opposed the rise in Petrobras prices under Castello Blanco.
President Bolsonaro quickly replaced Castello Blanco with former Defense Minister Joaquim Silva e Luna, who has no previous experience in the industry. However, the former questionable CEO is retiring, warning that state intervention policy could put artificial limits on fuel prices. Castello Blanco explained, “If you want to have a market economy, you have to have a market price. Lower prices have many consequences, some expected and some immeasurable, but negative.
The old Chief also looked like make a statement in his clothing choice, wearing a T-shirt with the slogan “Mind the Gap”. This reflects Petrobras ’2019 slogan, which stated its goal of closing the performance gap with major oil and gas companies around the world. It is anticipated that further state intervention could widen this gap.
Following the change in leadership, Petrobras’ stock fell, losing 20 percent of its value on Monday, to about $ 13 billion. This also adversely affected Brazil’s currency, which fell in value by 2 percent.
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This is not the first time the Brazilian oil industry has fought with state intervention. Petrobras was on the verge of filing for bankruptcy under former President Dilma Rousseff, who lowered fuel prices to the detriment of the industry.
Brazil is currently cracking down on its oil to international standards, however with the state having a 36.8 percent stake in Petrobras, and 50.5 percent of the voting rights, Bolsonaro maintains the cards for fuel prices.
Although the president has assured the public that his actions do not amount to “intervention”, based on previous state subsidies of fuel, international investors are uncertain about the head’s intentions. -suidhe.
With the general election due in 2022, Bolsonaro is seeking public support from key demographics. Reducing fuel costs could have a major impact on thousands of lorry drivers, who have been protesting against rising fuel costs.
The The President has also blocked further intervention in the power sector over the next few weeks, this time with a focus on electricity. “If the media is worried about the change yesterday [in CEO], next week there will be more, ”he said. “We’ll put a finger on electricity, which is also a problem.”
However, more intervention in the energy sector could dampen foreign investment in the country. After being hit hard by the Covid-19 pandemic, this is a worrying prospect for the Brazilian economy.
James Gulbrandsen, chief investment officer for Latin America at NCH Capital mentioned about the move, “If Bolsonaro engages in electricity prices, it is very likely that it will be able to attract foreign capital,”
Castello Blanco had won national and international favor for Petrobras, reducing the company’s debt, pushing for more independence, and making the company attractive to oil markets like India. We are yet to see if Silva and Luna will be treated with the same respect.
By Felicity Bradstock for Oilprice.com
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