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Petroleo Brasileiro S.A. (NYSE: PBR) is getting to demonstrate all over again just how bad it is when a nation is under a socialist regime.
The oil giant Petrobras saw its American depositary shares (ADSs) in New York pounded on Monday morning on news that Dilma Rousseff was re-elected in Brazil.
It is important to note how much the Petrobras shares were treated as a parabolic barometer of how the election polls were looking. Now it turns out that Dennis Gartman’s prediction was correct: Rousseff’s opponent had no chance of victory. That being said, her victory appears to be by a margin of only 51.6% to 48.4% over the centre-right candidate Aecio Neves.
As far as why Petrobras is such an extreme barometer, it is a state-run oil company in which profit and growth take a backseat to the country’s population. Petrobras has its terms dictated to it: it has to pay to drill the oil and does not decide what it can sell the oil and finished products for.
Sadly, Petrobras could be one of the greatest oil companies in the world. It has vast reserves, and it has yet to really capitalise by being a big international oil supplier on the world markets. Its state-run status keeps it in the dirt.
Petrobras shares had already sold off around 40% from the highs of September, based on the expectation that Rousseff would win in her reelection bid. New York’s ADSs were up over 6% at $12.93 on Friday, but Monday’s trading indications had Petrobras shares down more than 16% at $10.83. Keep in mind that the 52-week low of $10.20 was back in March, so a run to above $20 has effectively all been wiped out. The preferred shares of Petrobras trade as PBR-A, and they were down 16% at $11.27, against a 52-week range of $10.66 to $22.14.