Why Petrobras (PBR) is Falling Today

NEW YORK (TheStreet) -- Brazilian oil giant Petroleo Brasileiro SA (PBR) is falling today, as investors process Friday's announcement that the company will hike its diesel price 8%. At market open, shares had tumbled 10% to $14.35, adding to the company's year-to-date losses of 26.3%.

Petrobras, as it is more commonly known, said it will also increase its price for gasoline 4%. Both pricing policies were implemented at midnight Nov. 29.

The state-run oiler said the reasons for the price adjustment are threefold: to cut losses to the levels described in Petrobras' four-year business plan, to align Brazilian and international prices over 24 months, and to minimize the effects of international price volatility.

The company has suffered more than 30 billion Brazilian reais ($12.8 billion) in losses in less than 2 years as its prices are outpaced by oil's global value. The Brazilian government has resisted increasing the price of Petrobras' goods in an attempt to rein in inflation.

The price hike will apply only to the amount distributors pay before tax. The government expects consumer prices to increase around 3% as a result. However, details of the pricing strategy have been kept scarce.

"The parameters of the pricing method will be kept strictly in-house for commercial reasons," the company said in a statement.

The increase is the third time this year Petrobras has hiked prices. In January, the Rio de Janeiro-based business raised gasoline prices 6.6% and two months later increased diesel by 5%.

TheStreet Ratings team rates Petrobras-Petroleo Brasilier as a Hold with a ratings score of C. The team has this to say about their recommendation:

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