Pakistan to hedge oil prices for the first time
Pakistan is all set to initiate the process to hedge the prices of 15-20 percent petroleum products out of total annual imports of 68 million barrels oil either for up to two years get the benefit of the low prices of POL products in international market because of COVID-19 pandemic.
According to the documents the government will initially hedge price of POL products up to 15 million barrels. Because of the 15-20 percent hedging prices of POL of total imports, the overall price of petroleum products in the country would remain stable and cheaper as well.
Two possible scenarios have been proposed to the ECC for approval.
The first scenario consists of a call option for 15 million barrels of oil for one year, divided in 12 equal monthly amounts, for a strike price of $8 above current Brent as long as fee is within acceptable range. Under the second scenario It has also sought to have another call option for 15m barrels of oil for two years, divided in 12 equal monthly amounts, for a strike price of $15 above current Brent as long as fee is within acceptable range.
As per the prerequisites if the call option is given by any bank or insurance company on behalf of Pakistan at $30 barrel per day, then in case the prices go up for instance to $50 barrel per day, the prices of 15-20 percent of total POL products for country would remain at $30 per barrel and the difference of $20 per barrel will be picked by the bank or insurance company that gave the call option.