According to the WSJ, Petrobras should be seeing a bright future,controlling the world's biggest offshore discovery in decades. But surging local fuel demand, spurred in part by tight state control of domestic prices, is savaging the company's earnings.
Petroleo Brasileiro must pay global prices in U.S. dollars for fuel imports but sell domestically in local currency at artificially low prices. In the last two years alone, after-tax losses in the company's domestic refining and marketing operations were $17.4 billion.
A series of government-sanctioned fuel-price increases starting last spring seemed to help. But the Brazilian real's slump, down about 12% against the dollar in just two months, has undone this. Meanwhile, stubborn inflation and recent protests mean the government likely won't help with further fuel increases, possibly until after October 2014 elections.
These losses, plus sagging output at existing fields and cost overruns in its massive offshore projects, have taken their toll. Dollar-denominated investors in Petrobras suffered the worst returns of any large, integrated oil company in 2011 and 2012—and are on track to make it three years in a row.
There is light at the end of the tunnel: By 2015 or so, Brazil should become a net oil exporter, and Petrobras could be far more profitable. That is only if Brazil's government doesn't strangle its golden goose further, though.
Source: WSJ
Petroleo Brasileiro must pay global prices in U.S. dollars for fuel imports but sell domestically in local currency at artificially low prices. In the last two years alone, after-tax losses in the company's domestic refining and marketing operations were $17.4 billion.
A series of government-sanctioned fuel-price increases starting last spring seemed to help. But the Brazilian real's slump, down about 12% against the dollar in just two months, has undone this. Meanwhile, stubborn inflation and recent protests mean the government likely won't help with further fuel increases, possibly until after October 2014 elections.
These losses, plus sagging output at existing fields and cost overruns in its massive offshore projects, have taken their toll. Dollar-denominated investors in Petrobras suffered the worst returns of any large, integrated oil company in 2011 and 2012—and are on track to make it three years in a row.
There is light at the end of the tunnel: By 2015 or so, Brazil should become a net oil exporter, and Petrobras could be far more profitable. That is only if Brazil's government doesn't strangle its golden goose further, though.
Source: WSJ
