• 4 minutes Will We Ever See 100$+ OIL?
  • 8 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 11 minutes Energy Outlook for Renewables. Pie in the sky or real?
  • 29 mins Iran Loses $130,000,000 Oil Revenue Every Day They Continue Their Games . . . .Opportunity Lost . . . Will Never Get It Back. . . . . LOL .
  • 11 hours Shale Oil will it self destruct?
  • 1 day Berkeley becomes first U.S. city to ban natural gas in new homes
  • 20 hours Iran Captures British Tanker sailing through Straits of Hormuz
  • 4 hours Renewables provided only about 4% of total global energy needs in 2018
  • 5 hours EIA Reports Are Fraudulent : EIA Is Conspiring With Trump To Keep Oil Prices Low
  • 1 day Drone For Drone = War: What is next in the U.S. - Iran the Gulf Episode
  • 2 days Today in Energy
  • 9 hours Oil Rises After Iran Says It Seized Foreign Tanker In Gulf
  • 2 days Why Natural Gas is Natural
  • 2 days LA Solar Power/Storage Contract
  • 3 days Populist, But Good: Elizabeth Warren Takes Aim at Private-Equity Funds
  • 1 day U.S. Administration Moves To End Asylum Protections For Central Americans
Alt Text

Iran’s Tactical Move To Skirt Sanctions

Iran is shifting focus from…

Alt Text

Clean Energy Acquisitions Pick Up

The fear of a new…

Alt Text

Oil Will Go ‘’Bust’’ If Recession Hits

Oil prices fell on Thursday…

Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

More Info

Premium Content

“The Stock Is Cheap”: Brazil’s Hedge Funds Jump Into Petrobras

Last month, Brazil’s state-owned oil company Petroleo Brasileiro SA (colloquially known as Petrobras) made headlines when it put investors on edge when the company announced a controversial decision to walk back a previously planned price increase on diesel fuel. A few days later, in what was seen as an effort to win back the market’s trust, Petrobras announced they would go through with the price raise after all, but the damage to their stock value was done. One of the country’s best-performing hedge funds, however, saw the lowering value of the oil company’s stock as a major investment opportunity. In fact, while many other investors have shied away, Petrobras has become the single biggest holding of the XP Long Biased fund.

In mid-April Petrobras abruptly cancelled a diesel price hike citing concern for the country’s disgruntled truckers, who brought South America’s largest economy to a grinding halt last year when they went on strike in protest of high diesel prices, resulting in “10 days of chaos” and the forced resignation of unpopular Petrobras CEO Pedro Parente. The strike came amid outcry from Brazilian president Jair Bolsonaro, who publicly took the side of Brazilian truckers calling for “fair prices”. The most recent strike echoes concerns of last year’s protests, as well.

This move on the part of Petrobras gave investors serious cause for concern, casting doubt over whether the state-run oil firm was being guided by political influence. Investors have good reason to be wary, according to reporting by Oilprice, as the state-run oil company has historically underpriced its products and allegedly sold fuel at a loss for years under pressure from previous governments. Related: Trump’s Dangerous Oil Price Game

Despite President Bolsonaro’s campaign trail promises to toe the line with “orthodox economic policies” the far-right ex-military president’s first 100 days in office have indicated a different reality in which the “more populist factions in his government may have an upper hand over free-market voices”. In the wake of the Petrobras decision to cancel diesel price hikes, preferred shares in Petrobras saw their biggest drop in nearly with an 8 percent decrease. Further comments in defense of the Petrobras decision made by Bolsonaro sent shares even lower. “I’m not an economist. I already said I didn’t understand the economy. Those who understood economics sunk Brazil, right?” Bolsonaro was quoted to say to a group of journalists in Macapa. He continued, “I’m also worried about cargo transport in Brazil, about the truckers ... We want a fair price for diesel.”

Seeing the damage done, Petrobras quickly reversed their decision to cancel the diesel price hike, but for many investors the damage to Petrobras’ reputation was done. As Petrobras stock value slid, however, one of the best-performing hedge funds in Brazil doubled down on the buyers’ market, snapping up shares as other investors backed off. “Joao Braga and Marcos Peixoto, who manage US$ 1.3 billion (5 billion reais) at XP Asset Management, have increased their stake in Petrobras”, reported Uruguayan news agency MercoPress, “making it the biggest holding of their XP Long Biased fund even as the oil producer’s rally has outpaced the benchmark.”

Explaining his strategy in an interview with MercoPress, Braga said, “The stock is cheap[...], management is good, the company is deleveraging and there are the asset sales, which will be good for the company.” While Braga and Peixoto acknowledge that leaning into Petrobras is not without its risks, as future volatility such as the dip seen from the diesel decision is always a possibility, they nevertheless believe that Petrobras is greatly undervalued. “The duo see Petrobras trading at less than four times enterprise value to earnings before interest, tax, depreciation and amortization at current oil levels, compared to six times historically”, reports MercoPress.

As Braga sees it, “that means even if oil goes down, Petrobras doesn’t have to go down, because it has a lot of fat to burn.”

By Haley Zaremba for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play