September 16, 2013 / 11:26 AM / in 4 years

Brazil likely to hike fuel prices by Oct. 21 -report

SAO PAULO, Sept 16 (Reuters) - Brazil’s government may allow state-run oil company Petroleo Brasileiro SA to raise fuel prices by Oct. 21, the date of the first auction of exploration rights for the Libra subsalt oil field, newspaper O Estado de S. Paulo said on Monday.

Estado, citing unnamed sources, said a “relevant part of the government’s economic team” wanted gasoline prices to rise about 8 percent by that date.

By authorizing the increase in fuel prices by Oct. 21, the government wants to bolster investor confidence in the country’s oil and fuel model, Estado reported. Petrobras imports gasoline to meet domestic demand, but sells it at a loss due to the government’s insistence to head off inflation, which is currently running close to the official target’s ceiling.

The auction is expected to give the government greater control over the oil in subsalt fields, which are located beneath deep layers of salt on the ocean floor. Libra, which is off the shore of Rio de Janeiro, is estimated to hold 12 billion barrels of recoverable oil.

Spokespeople for Petrobras and Brazil’s Finance Ministry were not immediately available to comment on the Estado report. Petrobras is 48 percent controlled by the federal government and other state entities.

An 11 percent plunge in the value of the Brazilian real against the U.S. dollar over the past year has hampered Petrobras’ finances by making its foreign fuel purchases more expensive.

The losses imposed by fuel price controls also restrict the cash available to finance the company’s $237 billion five-year investment plan, the world’s largest corporate spending program, and have forced Petrobras to increase debt to meet its capital needs.

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