Diesel prices seen rising

The price of diesel is expected to increase despite the implementation of an oil hedging mechanism since February to combat the continuing volatility and instability of the global oil market.

Petrol was raised by Rs.7 per litre on Friday and Chairman of the Ceylon Petroleum Corporation (CPC), Asantha De Mel warned that diesel prices will follow suit if the international oil market continues its upward trend.

Petrol and a possible rise in diesel prices would jeopardize government plans to reduce the cost of essential food items during the New Year.

In February the government said it was planning oil hedging options to reduce its costly oil bill. Central Bank Governor Nivard Cabraal had said the hedging option was expected to reduce the country's oil import bill to around US$ 1.8 billion from US$ 2 billion. The CPC said it was to try out the hedging mechanism with diesel to keep prices as stable as possible.

On Friday, De Mel told The Sunday Times FT that the hedging mechanism has already been put in place and that around 300,000 barrels of diesel have been hedged so far. However, global diesel prices have escalated dramatically, increasing approximately by US$ 6 from US$ 72 per barrel over a period of five days and that hedging can only compensate for a portion of the costs. "We get only a small amount on the hedge, about US$ 2 per barrel," he said. "We cannot be compensated US$ 6."