Oil companies’ performance diverges on the stock market even with the commodity’s high; understand

since the beginning of war in ukraineO Petroleum it reached record levels last seen only in the 2008 crisis. The Brent type, a benchmark for Petrobras, went from around US$ 90 a barrel to over US$ 130 before having a slight decline. In this scenario, it would be natural to imagine that the shares of oil producers would benefit, but that is not the case.

A survey by Economatica carried out at the request of the CNN Brasil Business shows that the three oil companies with shares in the Ibovespa – PetroRio (PRIO3), 3R Petroleum (RRRP3) and Petrobras (PETR3 and PETR4) – have had very different behaviors since the conflict began.

From February 23 to March 17, 3R’s share rose the most, 12.41%, while action PetroRio increased 0.64%. Petrobras’ common and preferred assets fell, respectively, by 9.40% and 12.30% in the period.

Specialists consulted by CNN Brasil Business state that this difference is due to a series of factors, taking into account both marketing issues linked to each company and the inevitable political element in Petrobras, a state-owned company.

Impact of pricing policy

Phil Soares, head of stock analysis at Órama, says that, before analyzing the behavior of companies in the war, it is necessary to remember that they were already in an uptrend due to the appreciation of oil.

the commodity rose throughout the year 2021and continued in 2022, due to supply and demand divergences with the pandemic. With prices on the rise, stocks tend to benefit, even if the reflex is “gradually”.

For Flávio Conde, head of Variable Income at Levante Ideias de Investimentos, the main reason for the divergence between the shares is the fact that PetroRio and 3R Petroleum immediately follow oil prices abroad.

This means that if the price goes up, the amount charged also rises, as well as the company’s profit, which attracts investors. In the case of Petrobras, the story is different, even with the state-owned company having a parity with the international market.

“Petrobras only increases or decreases the price in the interval around 50 days, so when the price started to rise a lot, there were many days without gaining anything from this increase. she can’t keep up pari passu the price of oil equal to the other two”, he says.

But this is not necessarily an advantage for both companies. Early in the conflict, stocks rose even further. On the other hand, when oil returned part of the gains and went to around US$ 100, they also reduced the highs.

The time that Petrobras takes to readjust the prices of fuels means that the impact of the drop in oil also takes longer to affect equities. In the same period, while PetroRio and 3R returned some gains, Petrobras valued and reduced losses, since it had just announced the biggest price adjustment in more than a year.

But this was not enough to balance the declines linked to another factor of the state-owned company, the political. Conde attributed the decline in this period to the “fear of government interference” in price policy, to hold on to high prices, which would affect Petrobras’ profit margins.

Soares says that “the investors have a strong belief that Petrobras will never be able to take advantage of the price increase indefinitely, at some point it will not be able to pass it on because the price is politically expensive, a kind of ceiling”.

“There was the transfer now, but it was a whole discussion, with the passage of laws, it is a strong political issue, and as the market notices this, the shares tend to fall”, he says.

According to him, in addition to not being state-owned, the fact that PetroRio and 3R trade much smaller quantities of oil, which do not affect domestic supply, prevents them from suffering the risk of having any political interference.

The divergence between PetroRio and 3R Petroleum is linked to some specific elements of the companies.

Soares points out that PetroRio was already following a trend of “great appreciation since the second half of the year, many acquisitions, and these internal changes were already rewarded by the market”.

He assesses that the room for appreciation ended up being smaller, which led to a rapid flow of appreciation in the period, but then skepticism about the quotation and also realization of profits, which resulted in the sale of the papers and reduction of the appreciation.

Conde says that 3R ended up going up in this period because just before the war started, the company released a quarterly result that was not well received by the market, leading to a sharp drop.

With that, a room for appreciation emerged just as the price of oil soared.

Petrobras’ own shares end up having different performances for another factor. According to Conde, foreign investors tend to prioritize the common (PETR3) because they feel more secure, seeing less chances of the government taking any action that affects the holders of this type of action.

As the scenario was one of fear of interference, the drop in the preferred share (PETR4) was greater due to the view that its holders could be more vulnerable.

Will the current scenario continue?

Phil Soares believes that the price of oil is very high, and that the tendency for the next ones is to decrease due to the tendency of increasing supply and advancing negotiations between Russia and Ukraine.

This does not necessarily mean that oil company shares will fall, but “they may have some reaction, to a lesser extent”.

For him, the current high is unsustainable, and it doesn’t make much sense to invest given the recent records because they will not reflect future profits, more linked to lower prices.

Conde says that the adjustment announced by Petrobras already changes the divergence between the three companies.

“If oil drops, let’s say to US$ 94, PetroRio and 3R shares will fall, and Petrobras will fall much less due to the readjustment time. At high it’s good to have both companies, but not at low”, he says.

He cites a recent study by the International Energy Agency (IEA) that projects oil hikes in the second quarter and half of the year due to the difficulty in increasing production amid high demand.

The trend, he says, is that, if the war ends, prices will stay between US$ 90 and US$ 100, with the variation depending on the analysis of supply, demand and stock numbers.

Furthermore, Conde states that the Presidential elections this year should influence the behavior of Petrobras shares in the second half of the year, especially from August onwards, with the potential to weigh negatively.

“The current scenario, with the current favorites, should make more investors leave it and go to the other 2 [PetroRio e 3R]. The problem with this is that there are not enough shares, liquidity, to make this exchange because they are small companies”, he says.

“There is no way to sell Petrobras and buy PetroRio and 3R, the individual investor does it, but institutional investors, funds, cannot do it”.

Therefore, he believes that there are great chances of these investors migrating to the iron orewith prices also on the rise, especially the OK (VALE3), which has the liquidity to absorb this inflow.

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