MUMBAI - India's central bank said on Tuesday refiners would be able to hedge imports of crude oil on overseas exchanges, the latest move to ease pressure on state-run firms which have to sell fuel at below-market state-set prices.
Government-run refiners such as Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd say revenue losses from selling at fixed retail prices mean they are running out of money to import crude oil.
"In principle, it helps them to reduce volatility due to the rise in oil prices. So to some extent it will help oil companies reduce losses," Partha Mukherjee, treasury head at Axis Bank said, of the move to allow hedging on offshore exchanges.
The government is expected to consider a rise in state-set fuel prices on Wednesday. It is weighing losses at state oil firms and the political fallout of the inflationary move for the ruling Congress Party. [ID:nDEL32730]
The Reserve Bank of India (RBI) said refiners had sought greater hedging capacity because of volatile markets. Oil prices CLc1 surged to a record high above $135 a barrel last month.
"In order to provide greater flexibility, it has been decided to permit domestic crude oil refining companies to hedge their commodity price risk on crude oil imports in overseas exchanges/markets," the central bank said in a note on its website, www.rbi.org.in.
The firms would be able to hedge up to the greater of half of their volume of imports during the previous year or half their average volume of imports in the three previous fiscal years.
Further, refiners would be able to hedge domestic purchases of crude oil and sales of petroleum products on the basis of underlying contracts linked to international exchanges or markets.
Last week, the RBI raised borrowing limits for state-run oil companies and also said it would provide foreign exchange to oil firms by conducting open market operations in the special oil bonds the government gives the refiners as compensation for selling fuel at state-set prices. See [ID:nMBI001471], [ID:nDEL88724]
In a separate notification, the central bank said local companies would be allowed to invest abroad in excess of 400 percent of their net worth, as on the date of their last audited balance sheet, in the energy and natural resources sector.
The current limit is 400 percent. Such investments would require prior approval from the central bank.
Further, Indian entities could invest up to 400 percent of their net worth in overseas unincorporated entities in the oil sector, with prior approval of the RBI. Previously, only certain public sector companies were able to make such investments.
Government-run refiners such as Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd say revenue losses from selling at fixed retail prices mean they are running out of money to import crude oil.
"In principle, it helps them to reduce volatility due to the rise in oil prices. So to some extent it will help oil companies reduce losses," Partha Mukherjee, treasury head at Axis Bank said, of the move to allow hedging on offshore exchanges.
The government is expected to consider a rise in state-set fuel prices on Wednesday. It is weighing losses at state oil firms and the political fallout of the inflationary move for the ruling Congress Party. [ID:nDEL32730]
The Reserve Bank of India (RBI) said refiners had sought greater hedging capacity because of volatile markets. Oil prices CLc1 surged to a record high above $135 a barrel last month.
"In order to provide greater flexibility, it has been decided to permit domestic crude oil refining companies to hedge their commodity price risk on crude oil imports in overseas exchanges/markets," the central bank said in a note on its website, www.rbi.org.in.
The firms would be able to hedge up to the greater of half of their volume of imports during the previous year or half their average volume of imports in the three previous fiscal years.
Further, refiners would be able to hedge domestic purchases of crude oil and sales of petroleum products on the basis of underlying contracts linked to international exchanges or markets.
Last week, the RBI raised borrowing limits for state-run oil companies and also said it would provide foreign exchange to oil firms by conducting open market operations in the special oil bonds the government gives the refiners as compensation for selling fuel at state-set prices. See [ID:nMBI001471], [ID:nDEL88724]
In a separate notification, the central bank said local companies would be allowed to invest abroad in excess of 400 percent of their net worth, as on the date of their last audited balance sheet, in the energy and natural resources sector.
The current limit is 400 percent. Such investments would require prior approval from the central bank.
Further, Indian entities could invest up to 400 percent of their net worth in overseas unincorporated entities in the oil sector, with prior approval of the RBI. Previously, only certain public sector companies were able to make such investments.
