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See 5 reasons for the profit of BRL 44.5 billion in just 3 months

Petrobras announced yesterday (5th) the third largest quarterly profit in the company’s history, of R$ 44.5 billion, achieved in just three months. The result was much higher than the one obtained in the same period in 2021, which had been R$ 1.2 billion.

In the earnings report presented by the company, Petrobras attributed the profit mainly to the increase in oil in the world, to higher profit margins in diesel and more exports, in addition to the fall in the dollar between January and March.

Find out how the company’s pricing policy, which follows the price of a barrel of oil on the international market, fueled the gains and see below the five main reasons for this billionaire profit.

Price policy pegged to oil and the dollar

When it comes to selling oil products in Brazil, such as gasoline and diesel, Petrobras adopts prices that follow the value of oil on the international market. This company’s pricing policy, called Import Parity Price, was adopted in 2016, under Michel Temer’s government.

Prices are determined based on quotations for a barrel of oil on international stock exchanges, especially in London and the United States.

So, when the price of a barrel rises abroad, Petrobras raises fuel prices here.

Petrobras uses the international quotation as a reference because these values ​​define how much Brazilian refineries, including those of the state-owned company, pay when they import oil.

Where did Petrobras’ profit come from?

The main explanation is the rise in oil, but there are also others.

1. Valuation of oil: The price of oil on the world market rose 27% in the first quarter, compared to the previous quarter. In comparison with the first quarter of 2021, the increase was even greater, at 66%.

Crude oil had already been rising since last year, due to higher consumption amid the resumption of post-pandemic economic activity, but the rise accelerated after Russia’s invasion of Ukraine.

The war threatens the world’s supply of the product, because Russia is the second largest exporter and third largest producer of global oil, accounting for about 12% of the global supply.

Because of its pricing policy, Petrobras passes on these increases.

2. Difference between production cost and sale price of diesel: With the price increases made since January, the difference between the production costs of diesel and the selling price of fuel here has increased.

In March, Petrobras announced a 24.9% increase in S-10 diesel at refineries, the biggest readjustment promoted by the company since January 2021, when fuel prices began to climb in the country. It was the second time this year that the company increased the value of gasoline and diesel sold at its refineries.

This larger difference favors Petrobras’ earnings, even more considering that diesel accounted for 48% of Petrobras’ sales revenues in the first quarter.

3.More production and exports: The price of oil increased in the world, but Petrobras kept costs practically stabilized in the period.

The company is able to extract oil from the pre-salt at a cost of around US$ 6 a barrel, much less than the product’s selling price of US$ 101.40 in the quarter.

The company also increased production in the quarter, by 1.1%, and exported more product. Overseas sales increased by 55% compared to the first quarter of 2021.

This combination — higher production and more sales, higher prices per barrel and controlled costs — accounts for much of the higher profit.

4. Dollar Fall: The 15% drop in the dollar in the first quarter also helped Petrobras’ profit, because it reduced the company’s debts and other liabilities that are in foreign currency.

In the first quarter, this factor gave the oil company a positive result of R$ 12.5 billion. A portrait opposite to that of the first quarter of 2021, when the company had a loss of R$ 18.7 billion because, in that period, the dollar had appreciated.

5.More gains from financial investments: With more sales, Petrobras increased the amount of cash on hand in the first quarter, the application of these resources in the financial market generated more profits.

Part of this extra gain is due to the increase in the interest rate. The basic interest rate, the Selic, which was 2% per year at the beginning of 2021, reached 11.75% per year at the end of the first quarter.

With more money invested in investments that are paying higher yields because of higher interest, financial profit grows.

Petrobras’ financial result in the first quarter of this year was positive by R$3 billion, against a loss of R$30.7 billion in the same period in 2021.

Why Brazil imports oil and fuel

You may have heard that Brazil is self-sufficient in oil, that is, it produces enough to meet domestic demand. Why, then, does not only oil import as fuel?

The explanation has to do with the capacity and characteristics of Brazilian refineries, which are old.

Of the 19 refineries currently in operation, 14 were inaugurated before the 1980s and built to process much more imported oil, of the light type, than the oil produced in Brazil, of the heavy type.

So, Petrobras exports heavy oil to other countries and imports lighter oil to compose a mixture that can be processed in refineries.

Brazil currently produces a daily average of around 3.5 million barrels, of which 2.7 million barrels come from Petrobras.

National refineries today process 2.4 million barrels a day. They are only using 75% of their refining capacity due to a variety of reasons, such as maintenance downtime, strategic management decisions and operational issues.

This production from the refineries is not enough to meet domestic demand, hence the need to import fuel.

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