Petrobras Slumps as Fuel Price Increase Disappoints

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, fell to the lowest in six months after the government authorized a fuel price increase that trailed analyst estimates.

Petrobras, as the Rio de Janeiro-based producer is known, slumped 4.8 percent to close at 18.20 reais in Sao Paulo, the lowest since June 25. Brazil’s benchmark Bovespa index fell 1.8 percent.

The world’s biggest producer in deep waters will increase gasoline prices at refineries by 6.6 percent and diesel by 5.4 percent, according to a regulatory filing yesterday. The Rio de Janeiro-based company said it’s seeking to eventually eliminate the discount between domestic and international prices.

Fuel price controls, designed to contain inflation amid lackluster economic growth, 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 below cost.

“Petrobras will likely be relegated to continue posting significant losses due to imports,” Itau Unibanco Holding SA analysts Paula Kovarsky and Diego Mendes said in a research report. “The smaller-than-expected price increase will likely intensify the negative sentiment toward government intervention in Petrobras and the stock’s performance.”

Itau said it was expecting Petrobras to secure a 10 percent increase in gasoline prices.

The adjustment will reduce the price gap for gasoline to

11.8 percent and diesel to 12.2 percent, Banco Bradesco SA analysts led by Auro Rozenbaum wrote in a note distributed to clients yesterday. The price gap reduced revenue by 6 billion reais ($3 billion) in the fourth quarter, according to Bradesco.

Worst Performance

Petrobras slumped 31 percent in the past 12 months in U.S. dollar terms, the worst performance among oil producers with a market value of at least $50 billion. Colombia’s Ecopetrol SA gained 34 percent, overtaking Petrobras by market value.

The government’s efforts to slow inflation will probably prevent additional price increases in 2013, Kovarsky and Mendes said. Presidential elections in 2014 will make it difficult for the government to increase fuel costs for consumers, they said.

Petrobras is down 6 percent this year, compared with a 1.9 percent drop in the benchmark index.