Political Risk Latin America Blog @PolRiskLatam

Oil spike: pros and cons for Brazil

Posted in News and Articles, Political Risk by politicalrisklatam on February 24, 2011

by Jonathan Wheatley for Financial Times – Beyond Brics, February 24th, 2011.

Brazil’s approaching status as a major oil producer suggests higher oil prices should be cheered in the country.

But the short-term impact could be less welcome. This is not because of inflation: the prices of fuel and other refined products are controlled in Brazil. But if expensive oil causes economic pain around the world, that will hit demand for Brazil’s commodity exports.

Brazil declared self-sufficiency in oil in 2006 but it must still import fuel and other products because of a shortage of refining capacity at home.

Petrobras, the national oil company, ends up bearing the cost of controlled prices because it has to forego the higher revenues it would make by selling its oil at market prices. (continue reading… )

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