Hedging crude oil imports in developing countries

Stijn Claessens () and Panos Varangis

No 755, Policy Research Working Paper Series from The World Bank

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.

Keywords: Environmental Economics&Policies; Oil Refining&Gas Industry; Insurance&Risk Mitigation; Access to Markets; Markets and Market Access (search for similar items in EconPapers)
Date: 1991-08-31
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Citations: View citations in EconPapers (2)

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