Girish Gupta



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Petrobras Profits Hit Record High on Higher International Oil Prices
May. 20, 2011

Published by Minyanville

Petrobras, Brazil’s state-run energy giant, registered record profits of $6.72 billion thanks to high oil prices this week, up 42% compared with the first quarter three years ago. This tops the previous record quarterly profit set last quarter.

The news is thanks to growing production, rising domestic demand with the middle classes growing ever more rapidly as well as higher international oil prices.

Revenue in the first quarter shot up too, up 9% from the same period last year to $33.9 billion. It is domestic demand that is really thought to have fueled this surge in income for the state oil company. During the period, domestic sales grew to 2.344m barrels a day, up 7% from the first quarter last year. Natural gas sales were up 13%, gasoline 7% and diesel up 9%.

The company, however, believes that ethanol and gasoline prices are set to continue their decline as the country’s sugar harvest gets underway. "Ethanol prices continue to fall and therefore the prospect is for gasoline prices to fall further," Jose Lima de Andrade Neto, head of Petrobras' distribution unit, BR Distribuidora, said.

The government in Brazil requires that 25% of gasoline sold at the pump be ethanol. Declining prices for it therefore alleviate fuel prices.

Petrobras announced this week that it will not make changes to its team of senior executives for another three years. This follows suspicions last year that the then newly elected President Dilma Rousseff was keen to replace CEO Joses Sergio Gabrielli

"Floating cities" is the term being used to describe the company’s ambitious plans to develop oil reserves far into the Atlantic by deploying dozens of oil rigs. With the discovery of huge deposits in recent years, the company has been investing huge sums of money to begin the process of transforming Brazil into a major oil exporter.

The "cities" even have a mayor, according to Francisco Castro, who runs one of them. Talking to FOX News, the mayor of the P-18 platform showed off the 180 people “who live on my city," just a few of the 45,000 the company employs on its 86 fixed and 46 floating rigs.

Castro’s platform has the capacity to produce 100,000 barrels of oil alongside 2m cubic meters of gas per day. The company is looking to invest $224 billion between now and 2016 in order to develop these areas and boost daily oil production from 2.4m barrels per day to 4m barrels per day.

Spat With Argentina

The South American giant is currently involved in a spat with its biggest trading partner Argentina over restrictions as Argentina tried to cut down on rising imports, just as Brazil needs to be careful of with China.

Brazil will now require approval for all shipments of cars, which could take up to two months. This is likely to slow down Argentina’s huge manufacturing sector. Argentinian industry minister Débora Giorgi has said that Brazil is acting in an “inopportune and unannounced fashion” and this news will affect half of total bilateral trade.

"Stark Inequalities"

Amnesty International’s 50th anniversary human rights report brought the country down a peg pointing out the “stark inequalities” that remain in Brazil, despite its “considerable progress."

It is the favelas that are the backdrop to every visit to the country’s major cities that Amnesty criticizes, for their “range of human rights abuses” as well as “high levels of police and gang violence.”

Housing Boom

The Financial Times also points out hints of a housing boom that has hit much of Brazil. “Favorable tailwinds,” as described by the IMF, i.e., record prices for commodities and surging foreign funding, are driving a historic boom in house prices.

“Experience tells us that whenever there is a lot of credit available for emerging markets economies, especially in South America, and if that’s coupled with very high commodity prices, the tendency of our economies is to spend too much,” IMF western hemisphere director, Nico­lás Eyzaguirre, told the London paper.

In São Paulo, house prices have nearly doubled in three years. The bigger picture is the growth of the middle classes in the country. An increase in lending by banks has increased 200% since 2007, with growth of 20% forecast for 2011.

Many of these will be first-time borrowers from low-income groups wanting cars, motorcycles and household goods, says the Financial Times.

Deforestation Increase

Deforestation of the Amazon is thought to have increased 26% in the past nine months, compared to the same period a year ago. Around 710 square miles have been deforested in those nine months, which the government deemed “unacceptable."  Farmers cultivating new pastures by felling trees are to be targeted by authorities.


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© Girish Gupta