Brazil's Massive Oil Company Is Getting Eviscerated

Petrobras, the $US84 billion quasi-state Brazilian oil company, is down 16% as the market opens.

And it may very well be an ugly trading day until the close.

This latest selloff can be traced back to last night, when Dilma Rousseff won a second term as Brazil’s President. Wall Street was pulling for center-right candidate Aecio Neves.

But if you’ve been following the Petrobras story, you know that it’s been selling off for some time. The stock is down 24% over the last three months. Short-sellers like Jim Chanos — who says the company is a “scheme not a stock” — have been laying out the bear thesis for the company for some time, too.

Basically, the government has been forcing Petrobras to absorb the cost of energy subsidies it was giving Brazilians.

“They [the Rousseff regime] were doing fiscal policy through the development bank and through Petrobras,” said economist Claudio Loser, founder of researcher Centennial Group. “The company has been really suffering. Two years ago I would have said the company looked good.

So while regime change would not have made a difference in the immediate economics of the company or the country, it would have made a difference for investor confidence.

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