Preferred shares of Brazilian oil giant Petroleo Brasileiro (NYSE: PBR-A), popularly known as Petrobras, closed 9.7% higher on Wednesday, while Petrobras (NYSE: PBR) common stock, which carries with it voting rights and therefore costs a bit more, rose 7.7%.
There are at least two reasons this happened.
For one thing, oil prices climbed in Wednesday trading -- obviously a plus for an oil stock like Petrobras. U.S. benchmark WTI crude oil closed up 2.5% at $46.54 per barrel, while the internationally preferred Brent crude price climbed 2.1% to close at $54.91.
But also -- and perhaps more important for an oil stock like Petrobras that is based in Brazil -- new Brazilian President Jair Bolsonaro made an inauguration speech after getting sworn in yesterday.
In that speech, Bolsonaro promised to "rescue Brazil from corruption" and "free Brazil" from socialism. Bolsonaro has also previously promised to enact market-friendly reforms in Brazil, overhaul the country's pension system, and privatize state-owned companies to better align their interest with shareholders.
This last point could be especially important to investors in Petrobras, given that, according to data from S&P Global Market Intelligence, nearly 45% of Petrobras' voting shares are controlled by either Brazil itself, or by a subsidiary of the Brazilian federal public company National Bank for Economic and Social Development.
What might further privatization mean for Petrobras shareholders? Loosening the company's ties to the Brazilian government, Petrobras would presumably become more motivated to seek profit for its shareholders, rather than -- for example -- seeking to maintain jobs for Brazilian voters. Cutting ties to government might also help tamp down the temptation for Petrobras to involve itself in high-profile and shareholder-damaging bribery scandals, both of which can be expected to boost returns for shareholders.
That Bolsonaro has made the elimination of corporate and government corruption a cornerstone of his platform also tends to support the hope that Petrobras will feature prominently in future privatization efforts. At least that seems to be what Petrobras investors are betting on today.
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