Upside?
Although recent remarks by US president, Donald Trump, that the “war would end very soon” and the release of strategic oil reserves calmed oil markets briefly, the Persian Gulf conflict is far from over. Volatility is still expected over the upcoming months, and it looks unlikely that crude oil prices will fall in the short term to pre-conflict levels – around USD 60/barrel.
And in Brazil, like everywhere else, people are trying to understand the impacts on energy prices – especially gasoline and diesel. While a diesel price increase would have direct impact on cost of production, a gasoline price readjustment would spill over onto ethanol. We know that in Brazil we cannot discuss sugar without thinking about ethanol.
Considering today’s prices, if Petrobras decides to readjust domestic gasoline prices it would be a 35% increase – going from BRL 2.57/litre to BRL 3.47/litre. Consumers would see gasoline prices at the pumps rising to 6.62/litre, and ethanol ex-works could climb 2.88/litre without affecting its competitiveness. This is 17.7c/lb on a No11 basis and 350 points above current sugar front month contract. *
This season, mills are much less hedged than in the past four years, meaning they are able to respond to signals favoring ethanol production. Will 2026/27 see CS Brazil mills maximizing ethanol?
Not Necessarily.
This year Brazil will have presidential elections in October, which means that price increases are not very popular. Petrobras has stated that it will not pass volatility to consumers and will wait before making any decisions.
We maintain the view that price readjustments in this present scenario are highly unlikely. The conflict and oil price strength will need to be sustained for longer before we see Petrobras reacting – and will likely do so not all at once, with price increases carried out partially.
Based on this assumption, ethanol prices during the season over 18c/lb have a low probability of materializing and we maintain our current 48% sugar mix estimate for the 2026/27 season.
In case we do see a full readjustment, mills will be incentivized to produce more ethanol. If sugar mix comes down to 40%, it is less 5 million tonnes of raws sugar availability – basically wiping out the Trade Flow surplus of 2026.
Appendix – Explaining why Petrobras Decision Matters
Petrobras controls over 80% of the gasoline market in Brazil, making it a price maker. Since the company is partially state-owned, the government plays a role in its strategic decisions. In 2023, the present government declared that the company would no longer follow the international market as a benchmark for price decisions – six years after the company began once again using the international price parity as a benchmark for domestic prices.
