Mustafa AY – TDO – 31.05.2018 At previous weeks, Brazilian state-led oil company Petrobas announced for 50% increase in diesel prices. Petrobas’s oil pricing was approved by President Michel Temer. The core motives that led Petrobas to increase oil prices can be attributable to plummeted oil production in Venezuela and US sanctions over Iran. On account of these prominent reasons, oil prices per barril have been determined as 75 dollars, whereas previous year’s oil prices fluctuated between 40-50 dollars, but in a stable way. As a result, Petrobas decided on 50 percent increase in diesel price in very beginnig of this month.
Following the increase in diesel price, Brazilian Trucker’s Union (ABCAM) steered thousands of truckers into organize nationwide strike. Once the strike spread across 24 states, Brazilian economy gave its first indications of stagnation. Because the domestic shipment of perishable food, oil, transportation and other consumable commodities were delayed by stoppage activity of truckers, which means no sales in terms of producers. To give an example, on Friday, the country’s automakers association ‘ANFAVEA’ announced that they halted production for a day.
In the face of steady decrease in Brazilian economy, President Michel Temer announced that they will cut the taxes for diesel lasting for 60 days. Following presidential decision on tax cuts over diesel prices, ABCAM immediately suspended the nationwide stoppage. According to the state ministers, Temer’s tax cuts on diesel prices would leave a bill up to 1.37 billion dollars to the state. Because, tax cuts means selling diesel under the costs of production, which state-led oil company Petrobas operates. Thus, Temer’s precautionary policy will cause the budget deficit since Brazilian Ministry of Treasury has to compensate for the losses in Petrobas.
Besides this, Michel Temer’s presidential decision on re-setting diesel prices, which will be in implementation for 60 days, triggered downward performance of Petrobas shares in stock exchange. Petrobas shares plunged about 16 percent. Because temer, by reverting to state-led oil pricing policy, ignored newly applied oil pricing policiy of Petrobas, which is ‘daily oil pricing policiy based on international market’. Therefore, foreign share holders didn’t like Temer’s decision since Temer reverted to the interventionist model of oil pricing, we can say basically.
Once ABCAM suspended nationwide strikes, on Wednesday, Brazil’s larges Oil Labour Union (FUP)announced 3-day long stoppage. That Temer reverted to the interventionist model of oil pricing by applying tax cuts on diesel price inevitably led foreign share holders to withdraw their entities from Petrobas. For this reason, FUP may be encouraged to announce 3-day long strikes by foreign share holders, which highly likely put pressure on Temer not to do the same in case of diesel re-pricing.