As explained by a top executive of Petroleo Brasileiro S.A. or Petrobras (PBR), the company plans to boost its gasoline production by 12.5% year over year in July.
With this effort, management expects to minimize its fuel imports.
In order to cope with the growing domestic demand of gasoline, Petrobras has been consistently increasing its production from the beginning of 2011. In this regard, the company has upgraded its refineries and implemented advanced technologies to generate higher productivity.
The total inflow of gasoline for April and May this year totaled 2.5 million barrels, compared with 3 million barrels imported during the first half of 2010. The attempted increase in July will result in about 50,000 more barrels per day. However, if market demand still exceeds supply, Petrobras will resort to imports to fulfill the excess requirement.
We believe that steep ethanol biofuel prices have led to higher gasoline demand. Although ethanol prices have dropped somewhat in 2011, it is still relatively more expensive than gasoline in many places.
Headquartered in Rio de Janeiro, Petrobras is involved in exploration, exploitation and production of oil from reservoir wells, shale and other rocks; in refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons as well as in other energy-related activities.
The state-run company produces substantially all of Brazil’s crude oil and natural gas, and accounts for almost all of its refining capacity. Petrobras is setting up the country’s natural gas infrastructure and enjoys strong market share positions in its petroleum product and liquefied petroleum gas marketing businesses.
However, we maintain a long-term Neutral recommendation on the stock, considering the volatile macro backdrop, operational hindrances and the company’s huge investment requirements. Petrobras, which faces strong competition from peers such as ExxonMobil Corporation (XOM), PetroChina Co. Ltd. (PTR) and Royal Dutch Shell plc (RDS.A), currently retains a Zacks #3 Rank (short-term Hold rating).
