• 40 mins Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 5 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 6 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 7 hours Rosneft Signs $400M Deal With Kurdistan
  • 9 hours Kinder Morgan Warns About Trans Mountain Delays
  • 16 hours India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 21 hours Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 1 day Russia, Saudis Team Up To Boost Fracking Tech
  • 1 day Conflicting News Spurs Doubt On Aramco IPO
  • 1 day Exxon Starts Production At New Refinery In Texas
  • 1 day Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 2 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 2 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 2 days China To Take 5% Of Rosneft’s Output In New Deal
  • 2 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 2 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 2 days VW Fails To Secure Critical Commodity For EVs
  • 2 days Enbridge Pipeline Expansion Finally Approved
  • 2 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 2 days OPEC Oil Deal Compliance Falls To 86%
  • 3 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 3 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 3 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 3 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 3 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 3 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 6 days Texas Shutters More Coal-Fired Plants
  • 6 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 6 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 6 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 7 days Husky Energy Set To Restart Pipeline
  • 7 days Russia, Morocco Sign String Of Energy And Military Deals
  • 7 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 7 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 7 days India Needs Help To Boost Oil Production
Alt Text

Is The Aramco IPO On The Brink Of Collapse?

Conflicting news suggests that Saudi…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Four More Years Of Pain For Petrobras

Four More Years Of Pain For Petrobras

Brazil’s incumbent President Dilma Rousseff pulled off a victory on Oct. 26 in a runoff election, and the markets are not too happy about it.

As recently as September, President Rousseff was not seen as the preferred candidate. Brazil’s stock market seesawed as the polls changed, declining when Rousseff gained ground and rising when it appeared that she was falling behind.

In the end, Brazilian voters reelected her for four more years, and the day after the vote, Ibovespa – a leading index of about 50 Brazilian stocks – dropped nearly five percent.

The reason is that investors think that the fiscal policies of her Workers’ Party – largely credited with lifting millions out of poverty – could contribute to rising debt and inflation. There is speculation that Brazil’s credit rating could be downgraded to “junk” status if her administration continues on its present path.

Related: South America: The World's Next Unconventional Frontier?

Take the semi-state-owned oil company Petrobras. Last week, Moody’s Investor’s Service downgraded Petrobras’ credit to Baa2 with a negative outlook. That is just two levels above “speculative” territory.

Despite its offshore oil drilling prowess, Petrobras is deeply indebted. Much of that can be attributed to the expense of fuel subsidies for millions of people. The government of Dilma Rousseff has decided to heavily subsidize fuel in an effort to fight inflation, forcing Petrobras to pay for the expense. Moody’s cited Petrobras’ $170 billion debt as one major reason for the downgrade. That is enough to make Petrobras the world’s most indebted major oil company.

President Rousseff’s two main rivals – Marina Silva and Aecio Neves – both pledged to roll back fuel subsidies if they were elected. That, among other policies generally seen as less interventionist, had investors hoping either of the candidates would oust Rousseff. An oil industry trade group in Brazil said on the eve of the election that some producers might leave the country due to the poor investment climate.

And when each of the rival candidates appeared to lead at various points in the campaign, Petrobras saw its share price benefit. For example, when a June 6 poll was published, showing a 3 percentage point decline in Rousseff’s support, Petrobras’ share price jumped 8.3 percent. Petrobras’ stock surged in late August and early September when Silva shot to the top of the polls. The oil company’s share price then cratered after Rousseff regained lost ground in September.  

But by mid-October, Aecio Neves, seemed to have a good chance at winning the runoff after he came in a surprising second place in the first round of voting. Neves was seen as the business-friendly candidate. Neves not only promised to roll back fuel subsidies, he also said he would auction off offshore blocks, allow more investment from private international oil companies, and ease local content requirements that are blamed for ballooning costs.

Related: Brazil’s Petrobras Ramps Up Production of Pre-Salt Oil

Moreover, he indicated he would consider supporting legislation that removed the requirement that Petrobras take at least a 30 percent stake in all new projects in the pre-salt region – oil located deep beneath a layer of salt in the Atlantic Ocean. The result could have been a dramatic liberalization of Brazil’s energy sector.

Finally, the emergence of a kickback scandal also highlighted the perceived mismanagement and corruption at the oil company. A former Petrobras executive testified that he accepted bribes from construction companies that received contracts. After inflating the costs of contracts, some of the money was directed into the campaign coffers of Rousseff’s Workers’ Party. The scandal threatened to undermine Rousseff’s reelection chances.

However, it was not to be. Rousseff won 51.6 percent of the votes and another four years in power. Much of her support came from millions of poor people around the country who have benefitted from Workers’ Party policies. Many see little downside to fuel subsidies, along with other welfare programs that allow them to eke out a better living.

The morning after the election, Petrobras’ share price crumbled by 16 percent.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News