Hedging Government Oil Price Risk

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.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