Right...Gvn have two tools in their disposable Interest Rtes set....(they would try it ) and Re-inflation....that is IMO is a sure bet...
check this out..
Saudi Arabia to study use of oil futures
12:09 p.m. Oct 09, 1998 Eastern
By Tony McAuley
NEW YORK, Oct 9 (Reuters) - In a move that could ultimately have a significant impact on world oil markets, Saudi Arabia's state oil company, Saudi Aramco, is to study the use of futures and other derivatives as a tool to hedge against falling oil prices.
Saudi Arabia, the world's largest oil producer and exporter, has long shunned the use of futures, largely because of worries that its participation in the market would be so influential, akin to the Federal Reserve's position in the money markets.
However, futures have come to play a pivotal role in setting world oil prices since they began in the 1970's and other world oil producers, such as Venezuela and Mexico, have started derivatives trading operations to try to manage their price risk.
Also, the latest collapse of world oil prices over the past year has led Saudi Arabia and others to consider changing the old order, which was dominated by the cartel quota system of the Organisation of Petroleum Exporting Countries (OPEC). And within Saudi Arabia, there has been a move toward liberalising the economy, including recent talks by heir apparent Crown Prince Abdullah with oil company executives about the possibility of participation in some parts of the Saudi energy sector, such as natural gas and power.
The derivatives training course for the Saudi executives is to be run by the New York Mercantile Exchange (NYMEX), the world's largest exchange for oil and other energy futures. It is expected to begin in early November and cover all aspects of futures, options and other derivative securities trading, including accounting and the back office systems needed to support such an operation, according to sources familiar with Aramco's plans.
''It's a big deal,'' said Ed Krapels, director of Energy Security Analysis Inc. in Boston and an energy derivatives expert. ''It's a good sign and in keeping with other moves to liberalise.''
Its impact on Saudi Arabia and on the oil markets depends on whether and how the Saudis follow through on their initial study of the futures market. If they take a very conservative approach and slowly build up a programme designed to smooth the impact of volatile oil prices on the country's revenues, which have been cut 50 percent over the past year, then the impact would be benign, Krapels said. But if they were to view the derivatives markets as a method to try to prop up oil prices, then it could be very disruptive.
''The analogy with the Federal Reserve is a good one because the Fed has influence, but it's limited,'' said Krapels. ''If the market thought the Saudis had a view on where prices ought to be, it would trade against that view. That would be a fool's game and never succeed.
''If I was their advisor, I'd say start small and gradually build up,'' said Krapels, who adds that the whole process of putting together a sophisticated hedging operation could lead Saudi Arabia to break a long tradition and allow some of its physical crude oil to trade freely.
The decision is likely to be hotly debated within Saudi Arabia.
''Other countries do it -- Mexico and Venezuela -- but for Saudi Arabia, it's different,'' said a consultant currently working for Saudi Arabia, who didn't want to be named. ''The problem for the market is that Saudi Arabia has better information than anyone else.''
He said that Saudi Arabian officials understand that if their trading in the futures market became a liability, it would undermine the market's integrity and kill futures trading. So, they are likely to be extremely careful in their approach to the market as destroying futures trading would not be in their long-term interest.
((New York Energy Desk, +1 212 859 1623; fax 859 1629;
email - nyc.energy.newsroom+reuters.com))
Copyright 1998 Reuters Limited. |
