The Egyptian cabinet has announced that the country will purchase insurance contracts from international financial institutions to hedge against fluctuating global oil prices, Reuters reported.
“The Minister of Petroleum and Mineral Resources, and Minister of Finance will start the process of contracting with one international bank, or some, or international funding institutes for insurance against the risks of global oil price fluctuations as a protective measure,” the statement said.
No further details about the contracts were disclosed.
Seven offers from institutions looking to provide Egypt with hedging solutions are being reviewed, an anonymous source told Al Shorouk in June.
Immunizing fuel prices from the fluctuations of global oil prices has recently became one of the Egyptian government’s main concerns due to the effects on the public budget. Due to the recent increases in global prices the estimates of fuel subsidies as a percentage of GDP in fiscal year 2018/19 almost doubled to 2.1%, up from 1.2%. The government estimated a price of $67 per barrel in its calculations for the 2018/19 budget, while the current price of Brent crude is $74 per barrel.
The oil and finance ministries will introduce a new automatic pricing mechanism by the end of this year to lessen the impact of global crude prices fluctuations on the Egyptian market, oil minister Tarek El Molla announced in June.
The mechanism will adjust the prices of most types of fuel to reflect changes in global oil prices, the value of the Egyptian pound, and the proportion of imported fuel in national consumption.
In its recent review, IMF agreed that the new mechanism will lessen the impact global oil prices on Egyptian finances.