Indian Oil Corporation?s (IndianOil) crude oil derivatives trading on the Multi-Commodity Exchange (MCX) of India was formally inaugurated on Thursday by its director (finance), SV Narasimhan in the capital.
The corporation is already trading on the NationalCommodities & Derivatives Exchange (NCDEX), another major domestic exchange, since November 2006, to hedge its price exposure. By acquiring trading-cum-clearing membership of MCX, IndianOil has registered its presence on both the domestic oil derivatives platforms.
MCX accounts for over 95% of the energy derivatives contracts traded in India. The average volume of crude oil futures traded on MCX during the first half of 2007, was about 4.5 million barrels per day, providing considerable depth for more efficient price discovery.
The new initiative will enable IndianOil increase its hedging volumes against indigenous purchases, besides enhancing its flexibility to use different markets, like overseas over-the-counter (OTC) markets, as well as exchange-traded contracts. IndianOil is the only oil PSU to acquire membership of both the major domestic exchanges offering oil futures contracts.
According to Narasimhan, high volatility in international oil prices is a major challenge facing the domestic oil majors.
Therefore, IndianOil has embraced hedging activities with a view to mitigating oil price risk, if not eliminate it. He opined that domestic exchanges should offer derivatives contracts on major petroleum products so that refining companies can hedge their primary risk, viz., refining margins.
