Oil consumer hedging recovery? Still early days

SINGAPORE (Reuters) – While Pakistan’s move to consider hedging some of its oil imports may suggest that energy consumers are thinking differently about the outlook for prices, most remain gun-shy after a punishing year.

Falling options costs — the first hint of price stability after two months of gains and OPEC’s aggressive targeting of a $70-$80 oil price — make it cheaper for consumers ranging from import-dependent governments to global airlines to buy protection against a further rally.

For the moment, however, those signs are tentative, with the majority of analysts calling for a bigger short-term price correction, while hedgers from the Sri Lankan government to Singapore Airlines nurse hundreds of millions of dollars in losses after prices crashed from $147 a year ago to under $33.

Pakistan, which imports about 80 percent of its oil, plans to hedge 10-15 percent of its oil purchases to guard against volatile prices, a rare but not unprecedented move by a country burdened with high import costs.

For instance, with imports estimated at about 200,000 barrel per day, a 10 percent hedge on Dubai crude would be worth $14 million.

It doesn’t appear to be entirely alone.

Reuters