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Trump’s Iran Decision Haunts Big Oil

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Petrobras Records $8 Billion Loss after being Forced to Sell Gasoline below Cost

Petrobras Records $8 Billion Loss after being Forced to Sell Gasoline below Cost

In an effort to battle inflation in his country, Brazilian President Dilma Rousseff has forbidden the state-run oil company Petroleo Brasileiro SA - Petrobras (NYSE: PBR) from increasing its oil prices, forcing it to sell imported gasoline at 8% below cost which has led to an estimated $8 billion loss throughout all of 2012.

Until 2009 Brazil used to be self-sufficient in crude and gasoline, however demand has grown four times faster than the economy in recent years whilst the refining capacity in the country has remained fairly static. This means that Petrobras had to start importing gasoline.

Since September 2010 inflation in Brazil has been higher than the 4.5% target, and so to try and help the economy Rousseff’s government has forbidden that Petrobras raise its fuel prices. The oil company has made requests that it be allowed to increase prices slightly, however it is unlikely that these be granted.

Related Articles: EIA Predicts Cheap Gasoline in Time for Holidays

The Bank of America Corp (NYSE: BAC) predicts that Petrobras will suffer further losses next year of $4 billion to $6 billion if gasoline prices are not increased.

Lucas Brendler, of Banco Geracao Futuro de Investimentos, explained that, “you still don’t have any surplus in refining capacity in Brazil, so Petrobras is still going to import these products.”

Eric Scott Hood, an analyst at SLW Corretora (a brokerage in Sao Paulo),said that it will take three to five years for Petrobras to build enough refineries to actually reduce its number of imports and become profitable again.

CFO, Almir Barbassa, has warned that Petrobras may have to sell assets or reduce investments if the government does not allow the prices to be raised soon.

By. Charles Kennedy of Oilprice.com



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