Shares of Petroleo Brasileiros SA (NYSE: PBR), known as Petrobras, are up more than 5% this morning following a wholesale price hike on diesel fuel in Brazil. The state-controlled company had been prohibited by the Brazilian government from raising prices on gasoline and diesel fuel over concerns that hikes would fuel inflation in the fast-growing country.

With inflation falling below 5%, however, the government relented and the company raised wholesale prices on gasoline a few weeks ago and followed that the boost in diesel prices announced yesterday. The company’s new president had argued that without the price rise Petrobras would not be able to pay for its massive $237 billion investment in developing its vast offshore discoveries. Petrobras was last allowed to raise prices in 2006.

The company also announced a new oil discovery in the Espirito Santo Basin about 36 miles offshore. Petrobras owns 40% of the new discovery and Anadarko Petroleum Corp. (NYSE: APC) owns 30%, with the remaining 30% owned by a joint venture of two Indian firms. The size of the discovery has not been determined yet.

Due the requirement that Petrobras sell gasoline and diesel fuel at less than cost, the company piled up a loss of nearly $7 billion in the 12 months ending March 31st.

Petrobras shares are up 5% this morning at $19.67 in a 52-week range of $17.27-$35.10.

Paul Ausick

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