Updated - Adds video comments -

The government is to continue to hedge fuel purchases, albeit with shorter terms. Energy Minister Konrad Mizzi said.

Fuel traders have expressed mixed views on the government’s decision to insist on fuel hedging at a time when international market prices are in decline. However Dr Mizzi said hedging had benefited Malta for most of the past year. (See video comments above).

While there is agreement that hedging offered more stability in prices, recent experience showed that such deals could also backfire. Last May, the government announced a 2c reduction in fuel prices guaranteed till the end of the year. Unfortunately for consumers, the good news did not last long because, a few months down the line, they could not benefit from the sharp drop in the inter­national oil markets because prices were locked.

In his Budget speech Finance Minister Edward Scicluna announced cheaper fuel prices from January 1 until the end of March. The government opted for a shorter three-month hedging agreement rather than six, possibly to minimise risks in case international prices kept falling.

However, a significant chunk of the reduction in price goes back into the government’s coffers due to an increase in excise duty – 2c on diesel and 1c on unleaded petrol. As a result, rather than a 3c drop in prices, consumers were left with a 1c reduction per litre on diesel and a 2c cut per litre on petrol.

An experienced fuel trader who preferred to remain anonymous told Times of Malta that, in spite of the recent decline in fuel prices, hedging was always the best option given the market’s high volatility.

“An analysis over a five-year period shows that, in spite of the occasional drops, fuel prices tend to go back up and exceed previous levels. As a result, the overall trend would be an upward movement in prices,” the trader argued.

Another fuel trader preferred to be much more cautious.

“If I were in Enemalta’s position, at this moment in time I would not have hedged or done so for short periods,” he said.

More in The Times of Malta.