Launch of futures in Petrol & Diesel

It is noteworthy that ICEX is the first exchange in the world that launched trading in diamond futures contractsin August last year. Now it has setits foot on the launch of futures on petrol and Diesel. SEBI is investigating the product features prior to showing its concernto ICEX at the forefront to the launch.

According to sources, Dharmendra Pradhan, oil ministersaid that his ministry has already given the bob for the launch of futures trading as his ministry felt it was the right time for the launch of petrol and diesel in futures trading

Objective of the launch

The objective of the move is to protect and shield the large transporters, fleet operators,retail oil dealers and consumers from being unexpectedlystriked by volatility in prices of crude oil.

Sanjit Prasad, MD, ICEX told “We have received the ‘no objection’ from the ministry of petroleum & natural gas” He also added that ICEX is ready to launch the products immediately within in a day’s time after the positive signal from Sebi. The entire plan has been worked out for almost a year now. According to sources from an ICEX spokesman the project has been designed with the purpose and benefits that - “It is similar to taking insurance against price risk or price uncertainty by hedging on an exchange.”

The Government statistics, in fiscal 2018 which plays a vital role

The total usage of diesel in India was about 81 million metric tonnes.

The total usage ofpetrol was about 26 million metric tonnes which amounts Rs 5.5 lakh crore value ofmarket for diesel and about Rs 2 lakh crore for petrol.

Oil marketing companies in India have been changing the prices of diesel and petrol daily ever since June 2017.

The price is pronounced every evening that is functional from the next morning.

Transporters, fleet operators and large consumers are all affected when the price of these products goes up since they cannot modify their freight rates every day, along with change in the prices of petrol and diesel.

With respect to the petrol dealers, when the price is slashed and they have old inventory, they are put on to sell it at a lower price which has been revised. This strikes their margins.

Which countries are the world’s largest consumers and producers of oil ?

The 10 largest oil producers and share of total world oil production in 2017

Country Million barrels per day Share of world total
United States 14.46 15%
Saudi Arabia 12.08 13%
Russia 11.18 12%
Canada 4.87 5%
Iran 4.67 5%
Iraq 4.48 5%
China 4.45 5%
United Arab Emirates 3.71 4%
Brazil 3.29 3%
Kuwait 2.93 3%
Total Top 10 66.12 69%

The 10 largest oil consumers and share of total world oil consumption in 2015

Country Million barrels per day Share of world total
United States 19.53 20%
China 12.02 13%
India 4.14 4%
Japan 4.12 4%
Russia 3.55 4%
Saudi Arabia 3.24 3%
Brazil 2.99 3%
South Korea 2.41 3%
Canada 2.41 3%
Germany 2.37 2%
Total Top 10 56.78 60%
World total 95.36

You can have a look at the position of the consumption and share of India in the world market according to sources from EIA report.

What would be the major impact of the launch of futures contracts on diesel and petrol?

The launch of futures in these products would enable the consumers to purchase these contracts at a fixed price to take delivery at a future date. This could array from days to a few months.

The measure shields and protects the consumers in the following way. When the consumer purchases a specific amount of petrol and diesel at a picky price on a specified date for taking delivery, maybe in the subsequent month and still if the price is higher on the date of delivery, they will yet get the products at the same price on the date of purchase.

A retail gas outlet that already has an inventory of petrol and diesel can sell its product on the exchange at a particular price and is guaranteed of that same price even if the prices of these products turn down when they have to sell their inventory.