Even Pedro Parente, former CEO of Petrobras and architect of Brazil’s import parity pricing (PPI), now acknowledges that the current oil shock is not cyclical but structural — defined by persistent volatility. In such an environment, the question is no longer which rule to follow, but whether a market can function without a clear pricing reference at all.
Brazil has tried most models. For years, fuel prices were administratively managed, often to contain inflation — at the cost of significant distortions in Petrobras’ cash flow. The PPI, introduced in 2016, addressed that imbalance by anchoring domestic prices to international markets and restoring predictability. It worked. Margins became modelable, risk declined and capital returned.
That regime, however, did not survive unchanged. From 2023 onwards, Petrobras moved away from strict parity and adopted a more flexible framework, based on the “alternative cost of the customer” and the company’s marginal value. In practice, PPI did not disappear — it was diluted. It remained a reference, but no longer an automatic trigger.
The world, meanwhile, became harder to model. With oil swinging from $60 to $110 within a matter of months, mechanical parity began to look less like discipline and more like noise amplification. Not every spike is structural; not every increase warrants immediate pass-through.
Petrobras has therefore shifted toward discretion — filtering short-term volatility and choosing when to adjust prices. This logic is not arbitrary. But it is not fully transparent either.
That is where the dilemma lies. Under PPI, margins were largely a function of oil and exchange rates — imperfect but observable variables. Under the current regime, a third factor enters: decision. For investors, that introduces a layer of uncertainty that did not previously exist.
The consequences extend beyond valuation. Without a clear reference, market coordination weakens. Importers cannot gauge when to compete, distributors delay inventory decisions, and prices begin to reflect not just oil fundamentals, but uncertainty about the next move. Risk shifts from the barrel to the timing of decisions.
In practice, Petrobras already follows a consistent pattern: short-term volatility is often ignored, persistent trends are eventually incorporated, and prices tend to converge with international benchmarks over time. The issue is not the absence of a method, but its opacity. The pattern can be observed ex post, but not anticipated ex ante. And what cannot be anticipated is penalized by the market.
Alternatives exist, but none is straightforward. A band-based system around parity could reduce short-term noise while preserving an international anchor, improving predictability at the cost of slower adjustments. Stabilisation funds can smooth prices for consumers but shift the burden to public finances — often with difficult fiscal consequences. A model based primarily on domestic production costs may better reflect Petrobras’ economics, but risks disconnecting the country from global markets and discouraging importers and investors.
Brazil has moved from administered prices to a rigid rule and, more recently, to a flexible reference. In a world of structural volatility, none is sufficient on its own. The market does not need strict parity — but it does need to understand how decisions are made. Without that, discretion is indistinguishable from uncertainty. And uncertainty is always priced at a discount.
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