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For much of 2010, the energy sector has been in focus, particularly the crude oil corner of the market. As the Deepwater Horizon spill quickly became one of the worst environmental disasters in U.S. history, the Obama administration issued an offshore drilling moratorium, that was only recently revoked. All the while, oil was sitting below $75 per barrel, thanks to weak growth prospects and a currency crisis in Europe that cast a shadow of doubt on the industry as a whole. But as oil prices have begun to climb once again thanks to increased demand from emerging markets and a weak dollar, the oil industry may finally be poised for a triumphant return to strong levels of growth.

When most investors think of Big Oil, Exxon Mobil (NYSE:XOM) is typically the first that comes to mind–and rightfully so, as it is the third largest company in the world. But there is one powerful Latin American firm that many are quick to overlook, Petrobras (NYSE:PBR). Based in Brazil, Petrobras is the country’s largest public listed company as well as the largest company in the entire Southern Hemisphere by market value. Petrobras specializes in the extraction and production of crude oil, and is best known for its abilities in ultra-deep water oil extraction.

Today, Petrobras is set to release its earnings report, which analysts have predicted will show EPS of $0.83 for the most recent quarter. But what has many investors worried is the recent sale of shares to complete a deal the company predicted would double its output in just a decade. Overall, the company sold 2.4 billion common shares and raised close to $70 billion in what was the largest sale share in history in an effort to fund more offshore drilling ventures in areas recently purchased from Brazilian government. While this deal seems likely to greatly expand the company’s output, many investors fear that the company overpaid for these rights and in the end will have sunk more money into the project than can be recouped from the investment.

As Petrobras releases its highly-anticipated earnings, the iShares Latin America 40 Index Fund (NYSEARCA:ILF) should be active in Friday Trading. This fund tracks an index that measures the performance of four Latin American markets: Mexico, Brazil, Argentina, and Chile. Petrobras accounts for nearly 13% of this ETF while other top holdings include Bank Bradesco (NYSE:BBD) and Wal-Mart De Mexico (OTCQX:WMMVY).

From a sector standpoint, ILF focuses on industrial materials (27.9%), and financials (23.9%). In 2010, this ETF has gained approximately 10% while paying out a dividend of 1.4%. If Petrobras’ earnings come up short, look for this fund to take a hit, as many will fear that the company has bitten off more than they can chew with their recent drilling rights purchase. But if earnings are solid, look for this ETF to stay in positive territory for the day and potentially lift other Latin American markets higher as well.

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Disclosure: No positions at time of writing.

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Source: Friday’s ETF to Watch: iShares Latin America 40