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Do ethanol prices in Brazil follow Brent price and international gasoline price parity?

Author

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  • Cavalcanti, Marcelo
  • Szklo, Alexandre
  • Machado, Giovani

Abstract

After the introduction of flexfuel vehicles in Brazil, hydrated ethanol and gasohol (gasoline blended with anhydrous ethanol at an average volumetric proportion of 75:25) became basically perfect substitutes. This paper tests the hypothesis that hydrated ethanol prices follow the price of gasohol in Brazil (opportunity cost of ethanol). In addition it tests the hypothesis that gasoline ex-refinery price variation in Brazil tends to follow the variation in the Brent crude spot price. By testing these two hypotheses simultaneously, this study test a more general hypothesis that expresses the influence of Brent spot prices on hydrated ethanol prices in Brazil (second order effect). Findings indicate that a variation in the Brent spot price does not automatically cause a variation in gasoline ex-refinery prices in Brazil. The best correlation found was between the Brent price fluctuation and the six-month average gasoline ex-refinery price. In case of gasohol and ethanol pump prices, this relation is elastic over the long and short-term in the Brazilian market. However, the short-term elasticity is greater than that over the long run.

Suggested Citation

  • Cavalcanti, Marcelo & Szklo, Alexandre & Machado, Giovani, 2012. "Do ethanol prices in Brazil follow Brent price and international gasoline price parity?," Renewable Energy, Elsevier, vol. 43(C), pages 423-433.
    • Handle: RePEc:eee:renene:v:43:y:2012:i:c:p:423-433
    DOI: 10.1016/j.renene.2011.11.034
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    References listed on IDEAS

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    1. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    2. Goldemberg, José & Schaeffer, Roberto & Szklo, Alexandre & Lucchesi, Rodrigo, 2014. "Oil and natural gas prospects in South America: Can the petroleum industry pave the way for renewables in Brazil?," Energy Policy, Elsevier, vol. 64(C), pages 58-70.
    3. Palazzi, Rafael Baptista & Meira, Erick & Klotzle, Marcelo Cabus, 2022. "The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices," Journal of Commodity Markets, Elsevier, vol. 28(C).
    4. Bessa, Larissa C.B.A. & Ferreira, M.C. & Batista, Eduardo A.C. & Meirelles, Antonio J.A., 2013. "Performance and cost evaluation of a new double-effect integration of multicomponent bioethanol distillation," Energy, Elsevier, vol. 63(C), pages 1-9.
    5. Archer, Marcelo & Szklo, Alexandre, 2016. "Can increasing gasoline supply in the United States affect ethanol production in Brazil?," Renewable Energy, Elsevier, vol. 95(C), pages 586-596.
    6. Derick David Quintino & Heloisa Lee Burnquist & Paulo Jorge Silveira Ferreira, 2021. "Carbon Emissions and Brazilian Ethanol Prices: Are They Correlated? An Econophysics Study," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    7. Rafael Henrique Mainardes Ferreira & Claudia Tania Picinin, 2018. "Bibliometric analysis for characterization of oil production in Brazilian territory," Scientometrics, Springer;Akadémiai Kiadó, vol. 116(3), pages 1945-1974, September.

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