Transparency vs Market Impact: Oil Market Example

The FT has a story today about a event that I'm sure will become an academic paper in no time.

Mexico has been hedging their oil risk for quite a few years now. Basically they buy put options for a huge number of barrels, granting them the right to sell oil at a certain price at maturity (the story says they have set on $80/ barrel). Since PEMEX produces loads of barrels they are naturally hedged and guarantee their sale price per barrel in the future.

While spot and futures oil markets are large and deep, options this big are not that liquid. This is why most of the times these options are written over-the-counter with an investment bank counterparytuy.

This is an interesting example of the transparency vs market impact debate but incomplete. Maybe I'm missing something but I think they are making too much about it. The data is released with an obvious delay and the options are traded over-the-counter, so no big market impact. Maybe if the investment banks hedge their exposure by buying call options they could move markets, but they could also enter into OTC contracts themselves with other banks or use futures to pass the risk along.

Anyway, this would make a nice case study for a derivatives course.