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Petrobras to Counter Competition With Revised LPG Pricing

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In a bid to compete with private importers, Petroleo Brasileiro S.A., aka Petrobras (PBR - Free Report) is set to re-evaluate the fuel pricing policies for liquefied petroleum gas (LPG) . The company will review the international markets closely which will enable Petrobras to compete efficiently. Petrobras will revise the parameters used to calculate the international parity price.

In October 2016, Brazilian oil giant Petrobras outlined a pricing formula for petrol and diesel sales to bring about transparency. It was based on international market prices plus a margin for operational risks, profits and taxes. Per the policy, a monthly review of fuel prices was undertaken. Prior to that, the company used to review pricing occasionally and kept fuel prices low despite the high international fuel costs caused by subsidizing local consumption. This resulted in the company losing market share to imports.

However since July 2017, the company started reviewing fuel prices on a daily basis,as it believed that the previous pricing system was not sufficient to meet the increased volatility in oil prices and foreign exchange rates. Further, in a recent update released by the company, Petrobras changed its parity calculation for diesel,reducing its prices at the refinery by 5.7%..

Regarding LPG — a cooking fuel in widespread use by Brazilians — Petrobras felt the need to review its policy following a steep spike in the price since June. The new policy will help the company to counter the growing competition from fuel imported by competitors and grow and maintain its market share. 

Zacks Rank and Key Picks

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons in addition to other energy-related activities. The company operates in six segments, Exploration and Production (E&P), Refining, Transportation and Marketing, Distribution, Gas and Power, Biofuels and International.

Considering Brazil's huge pre-salt oil reserves — estimated at 9.5 to 14 billion barrels of oil equivalent and widely thought to be the most important oil find in recent years — Petrobras has  a strong position to maintain an impressive production growth profile.

However, the company has massive debt loads as it carries a net debt of more than $88 billion, with net debt-to-capitalization ratio of approximately 51%. As such, leverage remains a key area of concern for the firm.

 

Currently, Petrobras carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the energy space are Northern Oil and Gas, Inc. (NOG - Free Report) , Bill Barrett Corporation and Rice Midstream Partners LP . While Northern Oil & Gas sports a Zacks Rank #1(Strong Buy), Bill Barrett and Rice Midstream carry a Zacks Rank #2  (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Northern Oil and Gas delivered an average positive earnings surprise of 175% in the trailing four quarters.

Bill Barrett posted an average positive earnings surprise of 19.41% in the trailing four quarters.

Rice Midstream delivered an average positive earnings surprise of 35.25% in the trailing four quarters.

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