Petrobras sees highest market cap, but how far can the rally go?
Petrobras last week reached its all-time highest market capitalization and continues to be buoyed by the recovery in oil prices and the market’s perception that President Jair Bolsonaro (Liberal Party, PL) is advancing in the election race just days before the polls.The ordinary shares of the state-owned company saw gains of 3.41% on Friday, reaching a 95.39% growth in the year, while the preferred ones rose 3.43% on the day and 97.39% year-on-year. The company had a market capitalization of R$520.6 billion at the closing of the session.Even with the rally, analysts see a chance of additional appreciation of Petrobras’ shares, provided that the next government maintains the fuel price policy aligned to the international market, and even more if there is a nod to privatization. The performance of the global economy, with risk of recession, is another point of attention, since it can affect oil prices.A significant part of the company’s success in the year, as well as that of its international peers, is linked to the resilience of the oil price. Although distant from the level of S$127 (Brent) seen in March and with recession risks ahead, the price of the commodity, which has structural supply bottlenecks, has managed to stay close to $90, although quite volatile. The decision by the Organization of Petroleum Exporting Countries and allies (OPEC+) to reduce its oil production by 2 million barrels a day starting in November has given support in the short term."Prices fell on fears of recession but rose again after the cut. Now, the market calculates that the cartel’s production drop should be less than the announced volume, and considers effects such as the new announcement of the sale of strategic reserves by the U.S. government and the European Union’s strategy to create a mechanism that reduces the volatility of natural gas," says Daniel Cobucci, an analyst at BB Investimentos, which has projections of $103.10 for the commodity in 2022, $96.10 in 2023 and $87.10 in 2024.However, the company’s recent gains have been attributed to local politics. The reduction in the lead of Luiz Inácio Lula da Silva (Workers’ Party, PT) over Jair Bolsonaro in the polls for the runoff of the presidential elections — as some surveys show the possibility of Mr. Bolsonaro ahead — has boosted state-owned stocks."The legislative election has already been positive. During the election period, market participants were pricing a pragmatic Lula, but a...
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