The Reserve Bank of India has permitted oil refining companies to hedge their foreign exchange exposures and also permit them to trade the commodity in futures up to a maximum of one year. The RBI at its mid-term review of Annual Policy statement for the current fiscal on Tuesday said it would permit oil companies to hedge their forex exposure to the extent of 50% of their inventory volume of the previous quarter through overseas over-the- counter exchange traded derivatives up to a maximum one year forward.
?This is thrilling news, as we can now hedge against price movements to some extent,? said a senior official at state-owned BPCL.
?The RBI has displayed a good sense of openness but this is a double-edged sword and calls for risks management practices that are approved by the board,? said another top executive of an oil company. ?The RBI has been prudent to permit 50% of the inventory volume in hedging. Any wrong move if oil prices crash or the rupee depreciates will offset the advantages and put corporates in a tight soup,? he added.
Bankers say with the rupee appreciation, the move has come as a double whammy for oil marketing companies. ?With the rupee strengthening and being around 39.28 a dollar, oil companies can limit their impact of global crude price rise,? said Parthasarathi Mukherjee, president, Axis Bank. ?The only risk as of now is when global crude price starts falling,?he added.
According to another senior executive of a private-owned oil company, the RBI has now liberalised the economy and permitted Indian oil companies to participate more effectively in the global market…?
However, corporates will now have to exercise caution in the overseas market due to the present volatile movements in global crude. Global crude prices since September 30 this year have been on the upward climb.
From $80 a barrel in end September to $ 92 now, the prices have fluctuated between ranges of $10 and $15. ?It would have been advantageous if such hedging was permitted earlier,? said a treasury head at a private-oil company, ?but to hedge now would perhaps be suicidal as it is felt that oil prices could correct downward.?