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Petrobras to raise domestic fuel prices on Nov 22 -paper

RIO DE JANEIRO, Oct 30 (Reuters) - Brazil's state-run oil company Petrobras expects to raise gasoline and diesel prices on Nov. 22, when it unveils a new pricing formula that automatically narrows the gap between local and international fuel costs, newspaper Valor Economico said on Wednesday.

The new formula, once it is in place, will set automatic fuel price rises or cuts, smoothing out short-term variations in international oil prices. Investors hope the plan will help Petrobras cut debt that has ballooned because the company now sells imported fuel at a loss to keep domestic prices low.

A Petrobras spokeswoman did not have an immediate comment on the story.

Valor said the formula will likely take into account international oil prices during a certain number of months past, as well as a projection for future prices. The government still has to decide how often local fuel prices would be changed under the new formula, the paper added, without saying how it obtained the information.

Shares of Petroleo Brasileiro SA, as the company is known, have gained more than 6 percent since the company announced late Friday that its board was considering a new methodology to better align domestic fuel prices with those abroad.

Chief Executive Maria das Graças Foster said on Tuesday a better alignment of domestic and international fuel prices will be crucial in achieving positive cash flow in 2015.

In 2002, former Brazilian President Luiz Inacio Lula da Silva ended a short experiment with world-market pricing. He moved Petrobras to the current system under which the company would avoid raising domestic prices when world prices rose but also avoid fuel-price cuts when world benchmark prices fell.

But prices have trended upward in recent years. Brazil has let Petrobras charge more but has slashed wholesale fuel taxes to help keep domestic prices steady. Taxes hit zero, however, and recent permitted price increases have narrowed but not closed the gap with international prices.

The most recent price increases have been largely swallowed by the weaker real, which made fuel imports more expensive in local-currency terms.