The government is likely to lose more than USD$20-million that it bet on oil prices last year.
The government had hedged the money, in an attempt to lock in oil prices at USD$66 a barrel for 15 months if prices rose above that level
But oil prices have since plummeted below USD$30 a barrel.
When the government bought the insurance policy from Citibank six months ago, Senior Deputy Governor at the Bank of Jamaica, John Robinson, said it was an attempt to protect the country from oil prices rising higher than $66 a barrel.
At the time of the bet, oil prices were at about $63.
Between 2010 and 14, when oil was above $100 a barrel, the government’s oil import bill was approximately USD$1-billion a year. But things have changed dramatically, and according to corporate banker Aubyn Hill, the government should have seen it coming.
But even Hill, who has a background in oil trading and lived in the Middle East for several years, couldn’t have foreseen the extent of the fall in prices.
When Nationwide News asked him about the hedge in June last year, he said it was a good thing.
There’s still a remote possibility oil prices will go back up in time for the government to recoup its investment.
The Middle East is known to be unstable, and a war in the area could mean a tightening up of supply.
However, speaking with Nationwide News this week, Director General of the World Trade Organization, Roberto Azevedo, says he doesn’t see oil prices going back up soon.
So it’s anybody’s guess when oil prices will recover. Hill says the government stands to lose its entire investment.
On the other hand, some would say $30-million is a drop in the bucket compared to the hundreds of millions Jamaicans are saving at the pumps, on electricity, and in oil import costs.
Jamaica buys around 9-million barrels of crude a year.