While fuel prices soar, petrol, diesel futures on anvil: What it is, what government says, all other details

The rising petrol and diesel prices have taken a heavy toll on consumers in the last few weeks. Even though the government still hasn’t announced any immediate action plan to take control of the surging fuel prices, it is apparently working on launching petrol and diesel futures, which may open up an additional avenue for the trader community. Oil Minister Dharmendra Pradhan has said that the ministry has already given nod for petrol and diesel futures launch and the timing was right for launching of such products in India.

“The Petroleum and Natural Gas Ministry has given an in-principle nod to launch petrol and diesel futures contracts and we are hoping that SEBI will give final approval in this regard soon,” ICEX Managing Director and Chief Executive Officer Sanjit Prasad told PTI.

Petrol, diesel futures contract

The petrol and diesel futures are expected to help hedge against volatility in oil prices that his being witnessed in the last few weeks. Similar to other futures contracts including that of crude, unleaded gas, heating oil or natural gas, the diesel and petrol futures are also expected to be designed in such a way that it allows consumers to buy them at a fixed price for a delivery at a future date, say a month from now. Such contracts would be a legally binding agreement for making delivery at an agreed upon price. In energy futures, contracts are standardised by the exchanges worldwide, as to quantity, quality, time and place of delivery, barring the price.

Advantages

As these trade at centralised exchanges, futures contracts offer more financial leverage and flexibility than trading the commodities themselves. A consumer buying petrol and diesel at a specified price on a particular date for delivery will get the products at the same price as on the date of purchase even if the price is on the higher side on the date of delivery, thus helping in pocketing profits.

Crude is the most actively traded commodity contract worldwide. Petrol and diesel prices were hiked on Tuesday for the 16th day in a row even as oil prices were mixed.