Bharat Petroleum to hedge on NCDEX soon

Bharat Petroleum Corporation (BPCL), the country's second-largest oil marketing company, is likely to start hedging in furnace oil and Brent crude oil on the National Commodity & Derivatives Exchange (NCDEX) by the end of August.

However, the public sector oil marketing major has no plan to hedge on the Multi Commodity Exchange (MCX), the country's largest commodity exchange, as of now.

Both the exchanges have strengthened their presence in the energy basket, with the NCDEX offering trade in Brent crude oil, furnace oil and light sweet crude oil (recently launched).

The MCX facilitates trading in Brent crude oil, natural gas and ME sour crude oil.

The exchange stepped into the energy sector in February 2005, with the launch of Brent crude oil on its platform.

On the MCX, crude oil generates a turnover of Rs 21,617.17 crore, while natural gas clocks a turnover of Rs 1,062.84 crore on a fortnightly basis.

The NCDEX, however, has been registering a marginal turnover in its entire energy basket.

"We are in the process of finalising the modalities to hedge on the NCDEX. But we are confident of beginning the trade by the end of the month or the first week of September," said a company official on condition of anonymity.

Speaking about the future strategies on domestic comexes, the official said the company would adopt both the approaches of squaring off its positions as well as taking delivery, as the situation suited.

Indian Oil Corporation (IOC), the country's largest oil marketing company, is currently hedging on the MCX.

According to trade sources, furnace oil is the most preferred commodity in the energy sector. Trading in furnace oil, the cheapest hydrocarbon fuel available for burning, was launched on both the exchanges in October 2005.

Initially, the NCDEX had launched physical delivery-backed contracts in collaboration with BPCL to attract risk hedgers and oil marketing PSUs as natural sellers of furnace oil.

Furnace oil on both the exchanges has been generating very little turnover. Almost the entire domestic supply of furnace oil is controlled by three PSUs "� IOC, BPCL and HPCL "� and according to market sources, these PSUs offer heavy discounts ranging from 10 per cent to 30 per cent for exports.

Oil traders believe that an organised spot market running parallel to the futures will bring the furnace oil volume on track as a lack of authentic tool for referenceable price makes the futures market almost illiquid.