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Hedging crude oil imports in developing countries

Author

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  • Claessens, Stijn
  • Varangis, Panos

Abstract

The objective of this paper is to explore the application of risk management techniques to a typical developing country state-owned oil company (SOC) involved in importing and refining crude oil and to make estimates of the potential gains from using such techniques. The paper is structured as follows. First, the authors describe the crude oil price data that they use in the study and estimate the volatility of oil prices. The next two sections discuss the nature of a typical SOC's exposure to oil prices and present risk management applications for each of the exposures identified. The following section discusses the internal and external constraints to the use of options and futures hedges typically encountered in a developing country and provides some possible remedies. The paper concludes that oil-importing developing countries could gain considerably from using financial risk management instruments if several constraints, particularly negative publicity and legal obstacles, are removed.

Suggested Citation

  • Claessens, Stijn & Varangis, Panos, 1991. "Hedging crude oil imports in developing countries," Policy Research Working Paper Series 755, The World Bank.
    • Handle: RePEc:wbk:wbrwps:755
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    References listed on IDEAS

    as
    1. Gemmill, Gordon, 1985. "Optimal hedging on futures markets for commodity-exporting nations," European Economic Review, Elsevier, vol. 27(2), pages 243-261, March.
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    Cited by:

    1. Felipe Aldunate & Jaime Casassus, 2012. "Consumption and Hedging in Oil†Importing Developing Countries," European Financial Management, European Financial Management Association, vol. 18(5), pages 896-928, November.
    2. Felipe Aldunate & Jaime Casassus, 2010. "Consumption and Hedging in Oil Importing Developing Countries," Documentos de Trabajo 376, Instituto de Economia. Pontificia Universidad Católica de Chile..

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