Oil market financialisation and Russian Government budget hedging

Abstract

Market financialisation radically changes the process of oil pricing and results in increase of price volatility. Normal contango situation in financial markets is favorable for government risk hedging. Optimal hedging strategy depends on derivatives’ market conditions, but the recommended contract is put/spread option. Budget hedging may be beneficial for Government as it permits to include oil price in the process of budget planning more accurately.

Keywords

• oil market financialisation
• risk hedging
• government hedging
• normal contango