Petrobras Resists Gasoline Price Rise, May Have to Resell Imports at Loss

Petroleo Brasileiro SA (PETR4), the Brazilian state-run oil producer, said it’s still “too early” to raise domestic gasoline prices even as the company faces having to import the fuel and resell it below cost to meet demand.

“We don’t pass through to the Brazilian market short-term variations of the international price of oil,” Chief Executive Officer Jose Sergio Gabrielli said in an interview. “Our policy is a long-term policy, and it’s too early to decide what to do.”

Petrobras’s refineries are operating near capacity amid surging economic growth, forcing the company to buy fuel abroad even as government price caps prevent it from passing on the full cost to consumers. Petrobras’s profit gains haven’t kept pace with rivals such as Exxon Mobil Corp. (XOM) after the company cut gas prices by 4.5 percent in June 2009 and hasn’t raised them since. Crude futures have surged 66 percent in the meantime.

The Rio de Janeiro-based company won’t add any significant capacity to its domestic refining network until it completes a new plant in 2013, Gabrielli said yesterday from Houston. The company’s refineries supply most of the nation’s gasoline needs, with imports accounting for a “small” portion, he said.

Petrobras imported 1.5 million barrels of gasoline in April as economic growth boosted fuel demand and will likely also need to import this month, according to Gabrielli. The executive said April 12 in Beijing that prices must go up if crude stays high.

Agencia Estado newswire reported last week that the company plans to buy an additional 1 million barrels of the fuel in May.

Stock Drop

The company fell 0.7 percent to 25.56 reais as of 12:11 p.m. in Sao Paulo trading. The stock has lost about 19 percent in the past year, compared with a 3.2 percent decline for Brazil’s benchmark Bovespa index.

Low interest rates in developed economies have allowed speculators to drive up oil futures, making it difficult to predict when crude prices may retreat, Gabrielli said. Global oil demand and supply are balanced, he said.

Crude oil for June delivery fell 90 cents, or 0.8 percent, to $112.62 a barrel at 9:30 a.m. on the New York Mercantile Exchange. Futures are up 31 percent from a year ago.

There is “a very clear capital in-flight to the commodities market,” Gabrielli said. “This makes for very big volatility.”

Inflation in Check

Brazil’s government, which owns a majority of Petrobras’s voting shares, wants to hold gasoline prices steady to keep inflation in check. A report to be released May 6 will show that inflation in the 12 months through April increased to 6.59 percent, according to the median estimate of 27 economists surveyed by Bloomberg. The government forecasts the economy will expand 4.5 percent after growing 7.5 percent in 2010, the fastest pace in two decades.

Brazil may cut its fuel tax if Petrobras raises gasoline prices, Finance Minister Guido Mantega told senators today. The fuel tax cut would be “a measure for the future,” he said.

Petrobras is digging deeper in Brazil’s offshore Campos Basin to find deposits beneath existing fields and trapped under a layer of salt, Gabrielli said. The company has discovered about 2 billion barrels of recoverable oil in the basin since 2009, which is easier to exploit than deep-water fields in the nearby Santos Basin.

“The beauty of those types of discoveries is we can connect them to production platforms already in place,” Gabrielli said. Petrobras has pipelines and platforms at Campos, where it has produced for more than 30 years.

Salt Layer

A layer of salt under the seabed made it difficult for geologists to explore the area more thoroughly until technology such as three-dimensional seismic imaging improved. Two of Brazil’s most-productive wells produce from so-called pre-salt deposits in Campos, according to the country’s oil regulator.

Petrobras first found oil at Campos in 1974 and started commercial output in 1977, according to its website. Campos produced 1.9 million barrels a day in February, or 79 percent of Brazil’s oil and natural gas, according to the regulator.

Petrobras is on track to increase domestic oil output 5 percent this year to an average of 2.1 million barrels a day as the company ramps up offshore platforms, Gabrielli said.

International oil rig and platform suppliers will keep “complaining” as Petrobras expands its own fleet and reduces their control over the global rig market, Gabrielli said. The company aims to operate 55 deep-water rigs by 2020, 28 of which will be built in Brazilian shipyards, he said.

Drillers Not Happy

“The drillers are not very happy because we are increasing the capacity of drilling rigs worldwide,” Gabrielli said. “We can build rigs at competitive prices, international prices.”

The oil producer doesn’t plan to hold any more international rig tenders and will contract 21 more Brazilian rigs this year, he said. Drilling companies including Diamond Offshore Drilling Inc., Noble Drilling Corp. and Seadrill Ltd. rent it units.

Petrobras expects to beat its previous production targets at Santos, reaching 613,000 barrels a day in 2015 and 1 million barrels a day in 2017, according to a statement yesterday. About 60 percent of the output belongs to Petrobras, with the rest controlled by partners such as BG Group Plc and Galp Energia SGPS SA.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at Pmillard1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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