Petroleo Brasileiro SA, Brazil’s state controlled oil producer, was upgraded to the equivalent of buy by Barclays Plc, which sees the company’s refining unit reversing losses with the possible arrival of a new government.
Petrobras, as the Rio de Janeiro-based company is known, stands to benefit from an administration that would allow the company to boost domestic fuel prices, Barclays analyst Paul Cheng said after upgrading his recommendation on the stock to overweight from equalweight. The analyst increased his target price on Petrobras common and preferred American depositary receipts to $22 and $23, respectively, from $20 and $21.
Petrobras has posted more than $40 billion in refining and distribution operational losses since 2011, when President Dilma Rousseff started using the oil producer to subsidize fuel imports to rein in inflation. The stock has gained 62 percent since mid-March, the most in the BI Global Integrated Oil Companies index, as polls showed Rousseff’s lead over opposition candidate Aecio Neves is declining.
“The shares will see near-to medium-term positive momentum following the upcoming Brazilian presidential elections in October 2014,” the NY-based analyst said in a note to clients today. “The years of significant losses in the refining segment could begin to reverse because there is reasonable probability that the new administration will allow Petrobras to raise domestic product prices.”
Petrobras rose 0.9 percent to close at 20.49 reais in Sao Paulo.