Boston, MA 12/12/2013 (wallstreetpr) – Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is the largest Latin American publicly traded oil company. The company is controlled by the Brazilian government and the market gives it a value of $87.66 billion.
The company imports fuel and sells it at reduced domestic prices. And this is one of the many factors which are hurting its business. In the third quarter, PBR was trading its diesel lower than the international market by more than 20 percent. During the same time, it sold gasoline domestically at a price below the world market by more than 18 percent.
These tweaks in prices in which the company offers its fuel to the domestic market at prices lower than what competitors charge in their markets is hurting the company’s profits. As a state-run company, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) lacks full control of its pricing polices and the state policies it uses are too conservative to allow it enough space for profitability.
The Brazilian government is so sensitive to inflation that is now expected to hit 6 percent that it suppresses oil prices at home to avoid full-blast inflation in the country. This does no good for Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) which needs to meet its commitment to the investment community.
The company imports fuel to meet the supply shortage due to its low production capacity at home. The fuel that it imports is sold at home at prices that are lower than the world market, usually at a loss. PBR is currently making efforts to boost its production in a bid to meet the supply demand and also to cover its losses. But these efforts are yet to have any impact on its business as most of the plants hoped to correct the situation are out of operation still.
The bad new about the contracting GDP of Brazil which dipped 1.9 percent this quarter compared to the corresponding quarter last year also spells doom for Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)’s growth and profitability.