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Tuesday, 6 August 2019

Government seeking to increase oil hedging contracts this fiscal year

EXCLUSIVE- Gov’t mulls signing fuel hedging contracts with more banks this fiscal year: The government is planning to at least double the number of oil hedging contracts it will sign for FY2019-2020 and is currently reviewing bids from several banks, two government officials told Enterprise. The government will sign up to five new agreements as well as renew the two contracts it had signed in FY2018-2019. It plans to expand hedging to include other basic commodities in the next fiscal year.

Background: It was reported earlier in July that crude oil prices will be set at USD 64-68 per bbl in the government’s fuel hedging contracts with international banks. The finance and oil ministries had started renegotiating the USD 70/bbl price they had agreed on in the contract. Hedging contracts typically allow for a revision of the crude price on a quarterly basis. A Bloomberg analysis last year showed that every USD 1 increase above a benchmark price used by the state in annual budgeting added EGP 4 bn (USD 222 mn) to annual spending. This year’s budget uses a benchmark price of USD 68/bbl.

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