The North Block release did say that "detailed guidelines" on the rights of petroleum companies to hedge price risks would be issued by the Reserve Bank of India (RBI) and little else besides.

"It is too early to tell" said Indian Oil Corporation chairman MA Pathan, asked what the right to hedge price risks would mean for petroleum companies.As the country's canalising agency, Indian Oil imports close to 45 million tonne of crude oil and 13 million tonne of petro-fuels and should logically be looking forward to the blanket cheque to the forwards market. The ticket to the international commodity exchanges is expected to have some strings attached, though, like a limit on the foreign exchange exposure. Industry watchers say that the fact that hedging was allowed simultaneously for crude oil and petroleum products was a pointer. Petroleum refineries hedging price risks on crude oil supplies would have to secure their foreign exchange exposures against forward contracts for petroleum products, they felt.

"Risk premia for crude imports will obviously have to be offset against product exports," said some. The foreign exchange exposure limit should be spelt out in the RBI guidelines, now awaited. An easy guess is that the right to risk foreign exchange in the futures market will be available to companies that have the right to earn some. All the three key crude oil importers, Indian Oil, Reliance Petroleum Limited and the Mangalore Refinery and Petrochemicals Limited (MRPL) are expected to turn exporters now that there are huge surpluses of petro-products within the country. Indian Oil already exports close to 20 lakh tonne of petroleum products. Reliance Petroleum is known to have entered into export contracts for diesel and naphtha. The gigantic 27 million-tonne-per-annum Reliance refinery at Jamnagar imports crude through Shell Trading and Transport Company.

Mangalore Refinery and Petrochemicals Limited (a joint venture between the public sector Hindustan Petroleum Corporation and the Aditya Birla group)has tied up its crude imports with Chevron.

Both Shell and Chevron are futures savvy in the global oil mart. Who will be allowed to hedge price risks is not hard to guess. How the risks will be hedged is harder to guess. The forwards market enables crude oil or petro-product purchasers and suppliers to lock in prices and margins in advance, to be able to minimise potential losses in the future. The instruments are varied and range from caps and collars to swaps and options.

The ability to hedge risks would have enabled Indian Oil (expected to import close to 50 million tonne of crude this year) to protect itself from the wild fluctuations in crude prices this year. Every dollar increase in crude price will add Rs 358 crore to the country's oil import bill this year, when the country is expected to import 78 million tonne of crude oil alone. Had Indian Oil tied up forward contracts for crude when prices were hovering around $ 25 a barrel, it would have had less to worry about, now that prices are close to $ 30 a barrel in the Gulf and $ 35 a barrel in the North Sea. Hedging risks come with a price too. When prices fall, the potential seller loses.

At stake at most times is the risk premia, since less than a per cent of the futures contracts in the energy market, result in actual deliveries. Traders usually offset their futures positions before the contracts mature. The risk premia on crude purchases should obviously offset that on petro-product