RIO DE JANEIRO, May 17 — Brazilian state-run oil company Petrobras said yesterday it has ended its policy of pegging fuel prices to the international market, an overhaul promised by President Luiz Inacio Lula da Silva that had initially caused investor jitters.

Petrobras, whose prices essentially determine how much Brazilians pay at the pump, said it would still set them using “market references.”

But it said in a statement that the announcement “puts an end to the mandatory subordination (of prices) to the import parity price” in US dollars.

Veteran leftist Lula, who took office for a third term in January, had vowed during his election campaign to “Brazilianize” the company’s pricing policy, saying the old policy aimed to “please investors, to the detriment of the Brazilian people.”

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Petrobras investors had resisted changes to the policy, which helped Brazil’s biggest company deliver record profits of US$36 billion (RM161.9 billion) last year thanks to the global surge in fuel prices.

Petrobras followed up the policy change by announcing hefty price cuts almost immediately, of 12.6 per cent for gasoline, 12.7 per cent for diesel and 21.4 per cent for cooking gas.

“With this commercial strategy, Petrobras will be more efficient and competitive,” the company’s chief executive, Jean Paul Prates, said in the statement.

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“We will continue to be the market reference, without abdicating the (company’s) competitive advantages,” added Prates, a former senator named to the post by Lula in January.

Markets welcomed the announcement, with analysts saying investors had feared a more radical overhaul of the international price peg policy, which had been in place since 2016.

Petrobras shares rose more than 4 per cent on the Sao Paulo stock exchange before settling back to gains of around two percent.

“The market was expecting something much worse, a direct intervention,” said oil industry analyst Israel Rodrigues, of Genial Investimentos.

Prates told a news conference there would be “no intervention” by the government in price-setting.

The company’s competitiveness and profitability “are guaranteed,” he said.

Brazilians have suffered recently as the Ukraine war drove international oil prices to multi-year highs, triggering painful inflation that became a central issue in Lula’s election battle last year against far-right incumbent Jair Bolsonaro. — AFP