Kenya is grappling with substantial exposure to oil price volatility in what has seen its efforts to deal with price fluctuations challenging and expensive.
Conventional methods, such as stabilisation funds, have revealed notable areas for improvement to ensure efficiency.
A proposal of exploring Oil Risk Markets, alternatively known as oil futures or oil derivatives markets, as a potential solution.
The term “oil price risk” pertains to the possibility of abrupt, substantial, and unforeseen variations in prices. This risk can be chiefly managed in two ways locally.
Firstly, nations with extensive oil production, such as Saudi Arabia, rely heavily on the revenue generated from this resource. Consequently, any fluctuation in prices could significantly impact their income.
Secondly, governments that administratively determine the prices of oil-related products might experience financial strain, thus, occurring if the costs of their inputs rise and they need to adjust the prices of their outputs proportionally.