More institutions to pursue hedging

The first oil hedging deal by the Ceylon Petroleum Corporation (CPC) has excited other public sector institutions such as Ceylon Electricity Board (CEB) and private sector firms to embark on the hedging mechanism, in a bid to ensure price stability in their respective sectors.

“The CEB is exploring this idea to hedge oil this year,” a Central Bank official told The Sunday Times FT, adding that many such public sector institutions will follow suit to mainly hedge oil.

Standard Chartered Bank (SCB) which clinched the deal to structure this transaction is looking at several such deals this year. SCB CEO, Clive Haswell told The Sunday Times FT, “there are several of our customers interested in hedging several commodities and we are talking to them.”

CPC Chairman Asantha de Mel said the CPC will hedge crude oil this year. “This is the best time to hedge because after the Chinese New Year, which concluded a couple of days ago, oil prices have reduced,” he said.

CPC hedged their exposure to diesel, for 150,000 barrels per month for a period of three months from March 1 to May 31, 2007, which will help CPC counter against rising oil prices within a set range, at no cost. “This will make sure that CPC will benefit from future floating price movements up to the minimum Floor Strike Price Rate,” De Mel said. He said that nearly 50 percent of the diesel cost is being spent on transport which impacts on inflation. “This will save us about US$900,000 per month,” he added.