The Hindu Business Line : Furnace oil futures yet to take off

Lack of spot market reference price in the domestic market has failed to evoke the interest of risk hedgers and investors in furnace oil futures in NCDEX and MCX.

Furnace oil is the cheapest hydrocarbon fuel available for burning.

In October 2005, National Commodity & Derivatives Exchange Ltd (NCDEX) and Multi Commodity Exchange of India Ltd (MCX) had launched furnace oil futures with much fanfare.

The initiative seemed extremely viable in view of the fact that price volatility in furnace oil is much higher than crude oil.

As against an annualised 25 per cent fluctuation in crude prices, furnace oil prices fluctuate by 45 per cent.

No liquidity

Of the two, NCDEX launched physical delivery backed contracts in collaboration with BPCL to attract risk hedgers and the oil marketing PSUs as natural sellers of furnace oil. Even after five months, there is practically no liquidity on furnace oil in both the national exchanges.

While there was not a single buy or sell quote and no open interest position in furnace oil in NCDEX on Thursday, MCX manages single buy and sell quotes.

In fact, none of the commodity brokers Business Line has contacted trade in furnace oil in any exchange.

Pricing method

According to sources, the settlement pricing mechanism followed by the exchanges are derivatives of Platt's index and is of little relevance to India which is a net exporter of the product and IOC, BPCL and HPCL, controlling almost the entire domestic supplies, offer heavy discounts ranging from 10 per cent to 30 per cent.

The prevalent condition makes India a localised market without any reference price. PSU refiners that (Reliance does not produce furnace oil) mostly use old technology produce roughly 13-14 million tonnes of 180 centi stoke furnace oil annually, necessitating fast evacuation.

This coupled with intense competition among refiners leads to heavy and arbitrary undercutting vis-à-vis the import parity price officially quoted by oil PSUs.

In fact, the official (selling) price, better known as Arab-Gulf price itself is arbitrary, considering the fact that India being a net producer there is hardly any import demand.

"The need of the hour is a spot market platform to discover the domestic furnace oil price, without which forward contracts will fail to evoke any response," says Mr Ajay Agarwal, chief dealer of Esat India Commodities Ltd.

More Stories on : Commodity Exchanges | Petroleum

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Furnace oil futures yet to take off

Australian wheat to arrive in April first week

FCI to release 50,000 t wheat

Aditya Birla group goes to Laos, to set up wood pulp plant

Spot rubber rules steady

Organic promise

Bird flu under control, says Sharad Pawar

Poultry stocks get hammered after bird flu

Campco seeks more import curbs on areca

Plea to set up chilli board in Guntur

Sale route