📉 Oil dud

Good morning! Today, we comment on the Q1 results posted by Petrobras. The first poll about the 2026 presidential race. And the government’s aid to airlines remains a no-show.

If you like our work and want to give us an extra boost, you can fill up our reporters’ coffee mugs. Supporters get exclusive perks! Find out more.

Petrobras sees profits plummet

Petrobras, Brazil’s state-controlled oil company, posted its Q1 results on Monday after hours. Net profits shrank to BRL 23.7 billion (USD 4.8 billion), down by 38 percent yearly. Lower sales volumes, a decline in oil prices, and diesel margin reductions affected Q1 results.

 Why it matters. The results of Petrobras’s earnings report came in worse than markets anticipated. 

By the numbers. Fuel sales were down by 2.6 percent. Moreover, Petrobras faced fiercer competition in the ethanol market — a cheaper alternative to gasoline. That forced the company to avoid raising gasoline prices in the period, despite higher international rates. 

• According to Abicom, the price of gasoline sold by Petrobras in March was 18 percent below international benchmarks.

• On average, Petrobras sold its basket of fuels at BRL 476.14 per barrel — 16.3 percent lower than in Q1 2023. The company’s refining and supply sector reported a profit of BRL 3.8 billion, down 38 percent year-on-year.

What they are saying. Sergio Caetano Leite, the company’s investor relations and financial officer, blamed the weakening of the Brazilian currency for the poor numbers. “When currency depreciation occurs, there is fluctuation in the financial statements due to the exchange rate variation recognized by accounting rules. However, this does not affect the company’s cash flow,” he told investors.

• “During Q1, we maintained a consistent cash generation, which gives us confidence regarding future investments, including those focused on the company’s production growth,” said Petrobras chief executive Jean Paul Prates.

Dividends. Petrobras also announced on Monday that it will pay BRL 13 billion in dividends to shareholders in two installments (August and September). 

Glass half-full. Despite the weaker profits and lower dividends, investment firm Suno Research highlights an improvement in Petrobras’s operational expenses and the fact that debt levels remain under control.

Poll overreaction

Brazilian news outlets on Monday published headlines that seemed ominous for President Luiz Inácio Lula da Silva — mentioning a new Quaest poll according to which 55 percent of voters don’t believe he deserves a new term when the 2026 election comes around.

Hold your horses. Some outlets said the poll flagged risks for Lula’s re-election bid, but that may be more of an overreaction than an actual problem for Lula. 

• His approval ratings have stuttered in recent months, the government is struggling with its communication strategy, and it must deliver more results. But the 2026 election is two and a half years away, which is an eternity in politics, especially so in Brazil.

• Moreover, incumbency bias remains strong in Brazil. As is, no one could beat Lula if the elections were held today (which, of course, they aren’t).

Next in line? The poll shows that voters who support former President Jair Bolsonaro want his wife Michelle to be the standard bearer for the far-right. Mr. Bolsonaro was rendered ineligible for office last year (a ban that will last through 2030), and 28 percent of voters say they would rather have Mrs. Bolsonaro representing him on the ballot. São Paulo Governor Tarcísio de Freitas comes next with 24 percent of preference.

• Interestingly, the poll only simulates a head-to-head contest between Mr. Freitas and Lula, disregarding Mrs. Bolsonaro as a possible candidate. Lula beats Mr. Freitas among almost any voter group.

 Why it matters. Polls at this stage have little, if any, validity as a predictor of voter behavior. However, they can help shape how political actors act, who they rally behind, and the strategies they employ. 

Who is less hated? The poll also shows that the best-known politicians are also the most reviled. Mr. Freitas has a rejection rate of “just” 30 percent — which some conservative outlets highlighted as indicative of his potential growth in favor among voters — but 39 percent of respondents didn’t even know who he is.

Bolsonarism 2.0. Many conservatives have depicted Mr. Freitas as a moderate version of Jair Bolsonaro, as a way of giving the far-right a new paint job. It is important to note, though, that under Mr. Freitas, the São Paulo police killed in the first two months of the year twice as many people as it did a year prior. And the governor once said he “couldn’t care less” about police killing civilians during operations.

• He also named to head his state’s security policies a former cop who has faced multiple investigations for taking part in operations that allegedly murdered and/or tortured 16 people.

Government punts on aid to airlines 

Back in January, Ports and Airports Minister Silvio Costa Filho said the government would set up a financing fund for airlines that could reach BRL 6 billion (USD 1.16 billion). Four months later, the fund is nowhere closer to materializing. With public and private players still negotiating its specific rules, nothing is likely to be announced before July.

 Why it matters. Brazilian airlines are still reeling from the pandemic crisis, which grounded planes for months and drove up their debts. Borrowing costs skyrocketed during that period, making the situation all the more challenging. Unline what happened in the U.S., Brazilian carriers did not receive government aid. 

• Higher oil prices and a weaker Brazilian currency in recent years have also pushed up costs, especially jet fuel prices, further squeezing airlines financially.

• Airlines were able to defer many payments during this period, but were forced to swallow interest rates that reached 100 percent in some cases.

State of play. Earlier this year, Gol — one of Brazil’s “Big 3” airlines — filed for Chapter 11 bankruptcy protection in the U.S. It was just the latest of a series of struggling companies. In 2020, three of Latin America’s top carriers (Avianca, Latam, and Aeroméxico) asked for protection from creditors.

• Amid the Gol crisis, rumors emerged of a takeover by rival Azul. That would make the already uber-concentrated Brazilian domestic air travel market — three players account for 99 percent of the demand — even more deprived of competition.

Lingering questions. When he announced his willingness to create the fund, Mr. Costa Filho said the money could be used for debt payments, fleet renewal, and maintenance investments. But the government never gave concrete information about how long the fund would last, how much it would pay per year, and what commitments companies would have to fulfill in return.

What they are saying. On Monday, Azul CEO John Rodgerson said no proposal has been made to airlines but that talks between the private and public sectors are frequent. “We expect something to happen from July onwards,” Mr. Rodgerson told reporters.

Thought bubble. The current government has boldly announced programs it wants to formulate — but many of them have yet to come to fruition. For instance, the Ports and Airports Ministry originally said the airlines fund would be set up in ten days — then punted on a launch date multiple times to the current upended state.

Airfares. Brazilians have been paying a high price to fly in recent years. In April, however, airfares dropped 12 percent, bringing 12-month air ticket price inflation to -6.84 percent.

Quick catch-up

Environment Minister Marina Silva said 80 million Brazilians are exposed to extreme climate events. She said the government needs the help of Congress to draft action plans — but as we showed yesterday, Congress is keen on passing legislation that could worsen climate change.

Finance Minister Fernando Haddad on Monday announced a bill authorizing the federal government to suspend debt payments from Rio Grande do Sul for three years, as Brazil’s southernmost state has been ravaged by floods.

The government is considering handing out aid checks to roughly 100,000 families affected by the floods in Brazil’s South. Displaced families could also be temporarily included in Bolsa Família, the country’s flagship wealth transfer program.

Volkswagen will place workers of three factories on vacation as the floods in Rio Grande do Sul disrupt the auto industry’s production chains. Some of Volkswagen’s parts suppliers are located in the South of Brazil.

The post 📉 Oil dud appeared first on The Brazilian Report.