The Hindu Business Line : BPCL in talks with NCDEX for futures trading in furnace oil

BHARAT Petroleum Corporation Ltd (BPCL) is in negotiations with NCDEX for participation in the proposed delivery-based future contracts in furnace oil. With one refinery of its own in addition to its subsidiaries Kochi (KRL) and Numaligarh (NRL) refineries, BPCL is a major player in the furnace oil sector.

The NCDEX Managing Director, Mr Ravi Kumar, confirmed that the exchange was planning to launch physical delivery backed futures in furnace oil and was negotiating with a few other suppliers.

He, however, did not divulge the names of the companies involved.

According to him, the exchange had filed an application with the Forward Markets Commission (FMC) for such futures. The NCDEX was also negotiating with a few logistics providers on the provision of warehousing and other necessary infrastructures.

On the trading volumes expected, he said that NCDEX would be happy to register three-to-four times the volume compared with the physical market.

BPCL sources confirmed that the company was talking with NCDEX on the subject. "NCDEX may come out with futures in furnace oil. We have expressed a preliminary interest in participating in the same.

"However, we are still working on an agreement about physical delivery of the product, which will be crucial for participation in such contracts," a senior BPCL official said.

He said that the supply of furnace oil, a heavy-end refinery product, was far in excess of demand which has led to pressure on prices. The situation is worsening as furnace oil is being increasingly replaced by natural gas which is more economical and an environment-friendly fuel.

The pressure on prices is particularly strong as heavy-end products (including bitumen) require regular evacuation to maintain the production of value-added products, which often forces refiners to export furnace oil to overseas markets at a loss.

"For us, participation in furnace oil futures will be more exploratory in nature than otherwise. With the Mumbai refinery recently having enhanced its capacity, our production of furnace oil is bound to increase substantially beginning 2005-06. The futures trading may help us in discovering better prices," a BPCL official said.

Asked whether the company would also participate in Brent crude futures launched by NCDEX, the sources said that BPCL currently hedges risks by participating in future contracts in overseas markets. "We are yet to decide on participation in crude futures in the domestic market."

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