Uruguay hedges crude through World Bank

OREANDA-NEWS. June 20, 2016. Uruguay will become the first country to hedge crude oil through the World Bank since the organization was approved to conduct commodity-specific hedges in the first quarter of 2015.

The hedge covers 6mn bl of oil, or about 50pc of Uruguay's anticipated crude oil imports, until June 2017 under a financial derivative contract, the World Bank said this week. The \\$15.7mn deal will safeguard the import-dependent economy from major fluctuations in international oil prices, a bank official told Argus.

If the annual average of Dated Brent rises above \\$55/bl for the period ending June 2017, the bank will reimburse the Uruguayan government for the premium, the official said.

Ancap usually purchases crude in 1mn bl cargoes that could take more than a month to arrive at Uruguay's main import terminal of Jose Ignacio. If international crude prices were to fluctuate by \\$10/bl in that time frame — as prompt Ice Brent did in April when it increased from \\$38.67/bl on the first trade day of the month to \\$48.13/bl on the last — a vulnerable Uruguay would be held accountable for paying \\$10mn more than anticipated when it signed off on the deal.

"A significant hike in oil prices could force the government to divert financial resources from priority areas to respond to immediate needs," said Jesko Hentschel, World Bank Country Director for Argentina, Paraguay and Uruguay.

Uruguay's net debt increased to \\$20.35mn in the first quart quarter of 2016, up from \\$20.14mn last year and \\$19.71mn in 2014, according the latest quarterly debt report issued by the Debt Management Unit of the Ministry of Economy and Finance. State-owned oil firm Ancap posted losses near \\$200mn last year and relies solely on imports for crude consumption needs.

Yet the World Bank maintains Uruguay's liquid assets more than cover annual debt obligations. The country can afford to go without hedging but is adding precautions amid a recently volatile oil market, the World Bank said.

The last time Uruguay completed a hedging deal was in 2009 between Ancap and Citibank. That deal insured Uruguay's crude purchase prices remained between \\$54/bl and \\$90/bl, according to the ministry. If the achieved price was above \\$90/bl, the bank would pay the difference, and if it was below \\$54/bl, Ancap would pay Citibank.

Uruguay imported a total of 14.66mn bl of crude oil in 2015, according to customs data, with 51.84pc supplied by Nigeria. The remaining volume was shipped in smaller parcels from Brazil, the United Kingdom and Venezuela.