Bloomberg News

Petrobras Gasoline Price Rise Undecided on Inflation

January 18, 2013

A gasoline-price increase for Petroleo Brasileiro SA (PETR4), the state-controlled oil company responsible for supplying Brazil’s fuel consumption, is still undecided as the government weighs the impact on inflation.

Strong revenue from crude exports and an increase in the amount of ethanol mixed with gasoline in June will help compensate Petrobras, as the Rio de Janeiro-based producer is known, for selling imported gasoline and diesel at a loss, Energy Minister Edison Lobao said yesterday in an interview.

“We have to take into account the economic needs. The inflation issue is important,” Lobao said at his office in Brasilia. “The increase of the ethanol mix in gasoline helps Petrobras because it will cut pricey gasoline imports.”

Fuel price controls, designed to contain inflation amid lackluster economic growth, prevent Petrobras from passing on the cost of imported fuel to consumers. That contributed to the company’s first quarterly loss in 13 years in the second quarter and an unexpected profit decline in the third quarter. The company’s refining unit lost about $9 billion in the first nine months of 2012 as it sold imported gasoline at below cost.

Finance Minister Guido Mantega said on Dec. 19 that Petrobras would raise gasoline prices this year. Petrobras shares rose on Jan. 15 after O Estado de S. Paulo reported that the government planned to raise gasoline prices seven percent and diesel prices four percent to five percent next week, without saying where it obtained the information.

‘Importing Company’

Petrobras rose 0.2 percent to 19.74 reais at 1:47 p.m. in Sao Paulo and was the most-traded stock by value in Brazil’s benchmark index. The shares fell 0.7 percent yesterday.

“The problem with Petrobras is that it became, despite producing and selling oil, an importing company for the government,” Bernardo Wjuniski, an analyst at Medley Global Advisers in Sao Paulo, said in a Jan. 15 telephone interview. “It’s the company that allows the government to have this gap between local and international prices.”

Petrobras isn’t commenting on gasoline price levels, an official at Petrobras’s press office, who can’t be named because of corporate policy, said by phone from Rio.

With supply shocks last year pressuring food prices and unemployment at historic lows, Brazil’s annual inflation quickened to 5.84 percent in December. Consumer price increases have exceeded the central bank’s 4.5 percent target for 28 months.

Brazil will increase the amount of ethanol added to gasoline to 25 percent from 20 percent in June after the sugar harvest season, easing demand for gasoline imports, Lobao said. Gasoline and diesel consumption exceeds Petrobras’s capacity to produce the fuels, forcing the company to increase imports.

Lobao sees no risk of electricity rationing in the country as natural gas-fired plants increase output to offset low hydropower dam levels. Even so, the government can still meet a goal of reducing power prices by 20 percent this year, he said.

To contact the reporter on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

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


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