Iraq Hedges Oil Production in the Face of Price Volatility

To save itself from future price shocks the Iraqi State Oraganisation of Marketing Oil is going to set a price for the Oil that it plans to sell

Reuters

In the face of oil price volatility, Iraq may look at protecting itself by hedging parts of its crude oil production, said Falah Al-Amiri, the head of Iraq’s State Organisation for Marketing Oil. He said, “It is in our strategy in the future that maybe we will consider hedging part of Iraqi crude … SOMO is floating an idea now and this is yet to be studied,”

It is not clear what type of hedging might be considered by SOMO. Some organisations, such as Mexican oil monopoly Pemex, seek to ensure oil is sold at a guaranteed fixed price throughout the year, while others, such as Shell and BP, hedge their sales against short term oil price volatility.
Short term hedging helps to smooth price fluctuations between the signing of an oil sales contract and when the oil is delivered and paid for.
“There are a lot of requirements that should be taken first: we need to study hedging carefully and train people, we need to know the best companies involved in hedging … we still don’t understand the hedging process completely,” Al Amri said, adding there was no certainty that Iraq would adopt hedging practices.

Al Amri also said SOMO aimed to use methods such as auctions and joint ventures to promote Iraq’s oil interests and reduce imports of oil products.
SOMO and Russia’s Litasco have set up a joint trading company in Dubai to market crude, joining other Middle Eastern producers that buy and sell oil to boost their incomes.
Last month, SOMO sold its first cargo of Basra Light crude via an auction on the Dubai Mercantile Exchange (DME), which could become a platform for price discovery. DME is now the marketplace for most Omani crude sold in Asia.

(Reuters through UNI)