New Twist To Oil Hedging

With oil prices retreating below $80, the Government is set to re-consider its plans to hedge oil in March this year as earlier reported.

At the beginning of this year, Government announced plans to hedge oil in March by which time oil would be selling at $90 per barrel, according to a source.

But the most important commodity in the world hovered around $77 yesterday.

Fifi Kwetey, the Deputy Minister of Finance and Economic Planning, said government’s decision to hedge oil was tentative due to the volatile nature of price of the commodity.

He told Citi FM, an Accra based radio station that “Government had not taken any decision about the policy as far as the time and levels were concerned.”

Hedging is the process by which a buyer places a contract to buy the commodity at a fixed price from the seller when there is an anticipation of a rise in the price of the commodity.

The measure is expected to help curtail shocks that rising oil prices present.

Many economic analysts expressed varied opinions on the policy when CITY & BUSINESS GUIDE interviewed them.

Sampson Akligoh of Databank said, “The policy would be good if the Government can get future crude oil price right in order to enable the nation to save more money.

Collins Appiah of the Gold Coast Securities noted that “Government’s economic and financial team should conduct thorough analysis before adopting the policy since it is a risky business.”

In 2008, the then Finance Minister, the late Kwadwo Baah Wiredu ruled out any possibility of hedging after prices of the commodity increased significantly on the world market.

Even when calls were made by a former Deputy Minister of Finance, Moses Asaga and other petroleum experts for the nation to adopt the policy, Mr Baah Wiredu said hedging was risky for the economy since the oil market was volatile.  

He said, “In international trade, you look at the volume of trade before doing comparison; hence, you cannot use cocoa or gold revenue to balance crude.”

Economist Dr. Nii Noi Thompson also emphasized that hedging was a risky business, adding that the minister should tread carefully since “he was controlling public resources.”

“Hedging is not the best solution but rather the conservation of energy,” Dr. Thompson who is also the Executive Director of the Development Policy Institute stated.
Oil sold at $80 at the beginning of this year after Russia halted oil supplies to Belarus.

By Charles Nixon Yeboah