Pratim Ranjan Bose

Kolkata, June 19

Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) are preparing grounds to be broking and clearing members at National Commodity and Derivatives Exchange (NCDEX).

Aimed at directly taking positions on Brent crude and furnace oil, the move is expected to bring the much-needed liquidity boost at the energy futures market in India.

While both the companies are working on the documentation process and the preparatory work for securing board approvals, BPCL sources said the company might seek board approval at its next meeting scheduled in this month.

The participation of the oil biggies would broaden the scope of crude oil futures, which had so far tested only limited success in terms of liquidity, in the country.

According to sources, since trading on NCDEX is done in rupee terms, the move will also pioneer risk hedging by Indian oil companies in domestic crude which is 30-50 per cent of the total requirement in different refiners in the country.

Hedge risks

Domestic oil companies were so far hedging only on imported crude, as per RBI guidelines.

Since trading on domestic forward markets is not governed by RBI guidelines, IOC and BPCL can now hedge risks on domestic crude by taking positions in NCDEX.

According to sources, while IOC was looking forward to primarily take positions in Brent crude, BPCL is interested in both Brent and furnace oil.

It may be mentioned that BPCL had collaborated with NCDEX in October 2005 to provide the logistics and warehousing support to delivery backed furnace oil futures at the exchange.

Interestingly, however, furnace oil futures had failed to take off primarily due to lack of price benchmark.

"Our direct participation will pave way for discovery of new price bench mark for furnace oil away from the existing `look-back' pricing model (as per which the last fortnights price average is used for the next fortnight) followed by oil PSUs," a BPCL official said.

(This article was published in the Business Line print edition dated June 20, 2006)
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