Hedging of Oil Revenues by Using Future Contracts: A Case Study of Iran

Abstract

The main factor influencing the fluctuation of oil revenues is the price fluctuation of oil. Considering that Iran economy is dependent on oil revenues, therefore controlling the risks of price fluctuation in oil, seems to be quite necessary. One of the new strategies in controlling price risk factor is entering into the oil paper market, and using financial derivatives as an instrument, which is the subject of review in here. Coverage instrument used, are future contracts of one to four month in nymex oil stock exchange market. In this review, by using different methods of econometric, different situation for strategies covering the risk was resulted, of which for selecting the best situation, efficiency and desirability for each one is estimated. Results show that, by using future contracts, we can reduce the risks of oil revenues at least by 85%, which is reached upto 96% in most suitable circumstances.