“It’s useless to replace the head of Petrobras, Bolsonaro needs to change his ways,” Lula said at an interview with a local radio. “He could call a meeting of the energy policy council, bring Petrobras to the table and decide that prices won’t be dollarized anymore.”

Bolsonaro sacked the third chief executive officer he had appointed to lead Petrobras, piling pressure on the company to stop raising fuel prices as inflation running above 12% becomes a major campaign issue ahead of October’s general election. Pushing Petrobras to absorb higher crude prices instead of passing them to consumers is a rare point of coincidence between Bolsonaro and Lula as they vie for the presidency.

Eoin Treacy's view

Inflation is going to be a major election issue everywhere this year. The most successful politicians are likely to be those who make big promises like increasing wages, taxing the rich, implementing price controls on commodities and/or boosting domestic supply.

Brazil already has some of the highest interest rates in the world but the threat of demanding Reals for oil is a new development. The currency bounced last week from the region of the 200-day MA but will need to sustain a move above $0.22 to confirm a return to demand dominance.

Petrobras pulled back sharply today as the threat of government interference, and fuel subsidies, looks more likely under a Lula government. The weekly downside key reversal is likely to hold up potential for price appreciation for at least the short term and potentially the medium-term.