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Hedging Government Oil Price Risk

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  • James Daniel
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    Abstract

    Many governments are heavily exposed to oil price risk, especially those dependent on revenue derived from oil production. For these governments, dealing with large price movements is difficult and costly. Traditional approaches, such as stabilization funds, are inherently flawed. Oil risk markets could be a solution. These markets have matured greatly in the last decade, and their range and depth could allow even substantial producers, and consumers, to hedge their oil price risk. Yet governments have held back from using these markets, mainly for fear of the political cost and lack of know how. This suggests that the IMF, together with other development agencies, should consider encouraging governments to explore the scope for hedging their oil price risk.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/185.

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    Length: 21
    Date of creation: 01 Nov 2001
    Date of revision:
    Handle: RePEc:imf:imfwpa:01/185

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    Keywords: Oil; hedging; spot price; crude hedging strategies; futures prices; futures price; oil futures; hedge; million barrels; futures contract; oil prices; oil producers; bonds; derivative; futures market; oil exports; crude oil futures; futures contracts; petroleum exports; crude oil exports; spot price of derivative markets; oil production; nonrenewable resources; hedging instruments; oil consumers; forward contract; futures positions; derivative transactions; crude price; oil exporting countries; crude oil price risk; commodity bonds; commodity derivative; crude oil price; derivative instruments; oil companies; state-owned oil companies; oil-producing countries; oil company; oil markets; oil shocks; energy information administration; oil exporter; bond type; financial markets; opec; oil product prices; financial instruments; bond; oil exporters;

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Varangis, Panos & Larson, Don, 1996. "Dealing with commodity price uncertainty," Policy Research Working Paper Series 1667, The World Bank.
    2. Ricardo Hausmann, 1995. "Dealing with Negative Oil Shocks: The Venezuelan Experience in the Eighties," Research Department Publications, Inter-American Development Bank, Research Department 4010, Inter-American Development Bank, Research Department.
    3. Manmohan S. Kumar, 1992. "The Forecasting Accuracy of Crude Oil Futures Prices," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 432-461, June.
    4. repec:fth:inadeb:307 is not listed on IDEAS
    5. Cashin, Paul & McDermott, C. John & Scott, Alasdair, 2002. "Booms and slumps in world commodity prices," Journal of Development Economics, Elsevier, Elsevier, vol. 69(1), pages 277-296, October.
    6. Arrau, Patricio & Claessens, Stijn, 1992. "Commodity stabilization funds," Policy Research Working Paper Series 835, The World Bank.
    7. Rodrigo O. Valdés & Eduardo Engel, 2000. "Optimal Fiscal Strategy for Oil Exporting Countries," IMF Working Papers, International Monetary Fund 00/118, International Monetary Fund.
    8. Peter Wickham, 1996. "Volatility of Oil Prices," IMF Working Papers, International Monetary Fund 96/82, International Monetary Fund.
    9. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 2.
    10. Claessens, Stijn & Varangis, Panos & DEC, 1994. "Oil price instability, hedging, and an oil stabilization fund : the case of Venezuela," Policy Research Working Paper Series 1290, The World Bank.
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    Cited by:
    1. Guido Sandleris & Horacio Sapriza & Filippo Taddei, 2008. "Indexed Sovereign Debt: An Applied Framework," Carlo Alberto Notebooks, Collegio Carlo Alberto 104, Collegio Carlo Alberto, revised 2011.
    2. Michael Keen & Paul K. Freeman & Muthukumara Mani, 2003. "Dealing with Increased Risk of Natural Disasters," IMF Working Papers, International Monetary Fund 03/197, International Monetary Fund.
    3. Guido Sandleris & Filippo Taddei, 2007. "Indexed Sovereign Debt: a Survey and a Framework of Analysis," Carlo Alberto Notebooks, Collegio Carlo Alberto 66, Collegio Carlo Alberto.
    4. Landon, Stuart & Smith, Constance, 2014. "Rule-Based Resource Revenue Stabilization Funds: A Welfare Comparison," Working Papers 2014-1, University of Alberta, Department of Economics.
    5. Bems, Rudolfs & de Carvalho Filho, Irineu, 2011. "The current account and precautionary savings for exporters of exhaustible resources," Journal of International Economics, Elsevier, Elsevier, vol. 84(1), pages 48-64, May.
    6. AydIn, Levent & Acar, Mustafa, 2011. "Economic impact of oil price shocks on the Turkish economy in the coming decades: A dynamic CGE analysis," Energy Policy, Elsevier, Elsevier, vol. 39(3), pages 1722-1731, March.
    7. Ulrich Bartsch, 2006. "How Much is Enough? Monte Carlo Simulations of An Oil Stabilization Fund for Nigeria," IMF Working Papers, International Monetary Fund 06/142, International Monetary Fund.
    8. Chia-Lin Chang & Michael McAleer & Roengchai Tansuchat, 2010. "Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH," KIER Working Papers, Kyoto University, Institute of Economic Research 743, Kyoto University, Institute of Economic Research.
    9. World Bank, 2008. "Country Insurance : Reducing Systemic Vulnerabilities in Latin America and the Caribbean," World Bank Other Operational Studies 8010, The World Bank.
    10. Thomas Baunsgaard, 2003. "Fiscal Policy in Nigeria," IMF Working Papers, International Monetary Fund 03/155, International Monetary Fund.
    11. Alfredo Baldini, 2005. "Fiscal Policy and Business Cycles in an Oil-Producing Economy," IMF Working Papers, International Monetary Fund 05/237, International Monetary Fund.

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