Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled oil company, fell the most in more than four months after securing a fuel price increase that was below some analysts’ estimates.

Preferred shares in the Rio de Janeiro-based producer known as Petrobras slumped 9 percent to 17.80 reais, the steepest decline since November 2008. Brazil’s main stock index declined 3 percent.

Petrobras will increase prices of gasoline by 7.8 percent and diesel by 3.9 percent starting today, the company said June 22. Petrobras jumped 5.4 percent last week on expectations of a 15 percent increase in gasoline and diesel prices.

“The price increase is disappointing,” Luiz Roberto Marinho, a broker at Sao Paulo-based Renascenca DTVM, said in a telephone interview today. “It suggests that Petrobras will have to rely on more debt to execute its investment plan.” He doesn’t own shares or have a recommendation for the stock.

Petrobras boosted spending 5.3 percent to $236.5 billion in a revised five-year plan released on June 15.

Petrobras needs to increase gasoline and diesel 11 percent and 17 percent, respectively, to bring them in line with international prices on a spot basis, Banco Itau BBA SA analysts Paula Kovarsky and Diego Mendes said in a June 22 report.

“We therefore expect the lower increase, particularly on diesel, to frustrate market expectations,” Kovarsky said. “We expect a negative market reaction to the announcement.”

Rising Imports

Fuel imports climbed 46 percent in the first quarter to 406,000 barrels a day from the year earlier, according to information on Petrobras’s website.

Petrobras announced the price increase after markets closed June 22. The company didn’t answer phone calls or reply to an e- mail sent over the weekend.

Fuel sales have grown faster than the average for the economy this year because of an increase in car ownership, Jose Lima de Andrade Neto, the head of the company’s distribution unit, told reporters in Rio de Janeiro on June 11.

Brazil is eliminating the so-called Cide tax on gasoline and diesel to “neutralize” the impact of price increases at Petrobras refineries, the Finance Ministry said in a June 22 statement. The increase in prices failed to eliminate the gap of about 15 percent with international fuel prices, Auro Rozenbaum, an analyst at Bradesco SA (BBD), said in an e-mailed response to questions yesterday.

Government Policies

“The effort has been so focused on keeping inflation in check that Brazilian government policies prevent Petrobras from operating on a level playing field with other integrated majors,” Gianna Bern, president of Chicago-based risk- management adviser Brookshire Advisory, said in a June 23 phone interview. “Petrobras is in effect forced to subsidize.”

Petrobras is investing $65.5 billion in the five years through 2016 to expand its domestic refining network in an effort to phase out fuel imports, the company said June 14. Refining and transportation accounts for 28 percent of Petrobras’s $235.5 billion investment plan, the largest in the industry.

“The combination of a prolonged bear market in crude oil prices and unsupportive governmental policies could potentially put a major capital plan at risk for Petrobras, at least in the near term,” Bern said.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net; Lucia Kassai in Sao Paulo at lkassai@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net