PROPOSING THE METHOD TO PREDICT THE BREAKEVEN OIL PRICE FOR HEDGING AND SUSTAINABLE FINANCE IN OIL EXPORTING COUNTRIES: AN EMPIRICAL STUDY IN ALGERIA USING THE BLACKSCHOLES MODEL

Abstract

Oil-exporting countries suffer from the volatility of oil prices, especially in the recent period, which makes them vulnerable to risk trying to find a hedging strategy. This paper aims to propose a new method to predict the fiscal breakeven oil price, for oil-exporting countries based on an empirical study using the Black-Scholes model in Algeria. To achieve our examination we use the oil prices with daily data during the period of 02/01/2013 to 21/09/2020, the fiscal breakeven oil prices and external breakeven oil prices from 2000 to 2020, which are determined by the International Monetary Fund (IMF); in addition to the fiscal breakeven oil prices of Algeria. The main results of our study highlight that there is a strong correlation between the fiscal breakeven prices based on the Black-Scholes model and the external breakeven price, and weak correlation with the IMF’s fiscal breakeven prices, which means that the Black-Scholes model is outperforming to predict the fiscal oil prices in comparison with the IMF method. The results also indicate that there is a negative correlation between the B-S and the reference prices indicated in Algeria's public budget.