Petroleo Brasileiro SA (NYSE: PBR), or Petrobras, may be raising its prices for fuel but the feeling is that the move might just not be enough to move the needle. Price hikes, with all other variables remaining nearly static, are supposed to drop straight down to the bottom line. Apparently the other variables are not really close to static. It is too bad for Petrobras shareholders because the level of the hikes are almost 8% for fuel and almost 4% for diesel and those are lower than what investors had been expecting when they bid up shares last week.
The talk had been for closer to 15% price hikes and that is what investors were expecting. In all honesty, for a state-run public company to ever get a 15% price hike on the citizenry would not be a normal situation. Global oil prices have been coming down substantially over the last seven weeks. Had they been rising, then perhaps a double-digit request might be realistic.
After going through analyst reports and news reports, we have seen that analysts are not taking the low-percentage price hikes that well. Banco Itau BBA SA and Credit Suisse have both chimed in that the hikes are not enough. The company’s CEO also admitted in a 2012 to 2016 business update on Monday morning that the production goals have not been realistic.
Petrobras shares are down over 2% around $19.15 right before the open of the ADRs in New York and the 52-week range is $18.16 to $35.10. It is hard to imagine it, but the shareholder losses in this great Brazilian oil giant have been larger than the losses were for BP PLC (NYSE: BP) shareholders from the Gulf of Mexico rig disaster in 2010.
JON C. OGG