India plans to ask its state-held oil refiners to lock in the price of their crude oil futures purchases amid a sliding local currency and expectations of higher oil prices when U.S. sanctions on Iran return in early November, Reuters reports, quoting a government source.
Over the past few months, rising oil prices and the weakening Indian currency, the rupee, have already created a perfect storm for India, where oil demand growth has been surging, but the higher oil prices are increasing the country’s spending on crude oil imports, which account for 80 percent of Indian oil consumption.
To make matters worse, the Indian rupee has been the worst performing currency in Asia so far this year, losing around 12 percent of its value against the U.S. dollar year to date.
India’s state refiners—who receive 70 percent of their oil through term contracts and the rest in deals on the spot market—have not been too keen to hedge futures contracts in the past because they have feared a backlash if hedges go wrong, Reuters notes.
According to officials at several large Indian state-held oil refining and marketing companies who spoke to Reuters, the state oil refiners would look into the possibility to hedge forward contracts, should the government ask them to do so.
Indian Oil Corporation is considering some forward contracts, a senior official told Reuters, declining to specify what the official described as “market sensitive information.”
BPCL is trying to hedge margins, while an HPCL official told Reuters that the government hadn’t asked it to lock in futures prices, but would “look into it” if the government asks and if it is needed.
The Indian government fears that the rupee depreciation could continue over the next two months, if government measures to stem the speculation on the rupee market fail, a senior finance ministry official told Reuters.
By Tsvetana Paraskova for Oilprice.com
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