Hedge Start

Feb 14, 2007 (LBO) – Sri Lanka has stepped into the murky world of futures and options by hedging part of its future oil payments for March, Ceylon Petroleum Corporation Chairman said Wednesday. The national oil company signed off an option collar for 150,000 barrels of oil at a strike price of 70 dollars with Standard Chartered Bank.

“The contract is for one week with a floor of 67 dollars and a maximum of 72 dollars,” Ceypetco Chief, Asantha de Mel said.

“We are first starting by hedging diesel imports because we use around 4,000 tonnes a day. The prices of diesel is usually around 10 dollars more than crude prices,” he said.

Import-dependent Sri Lanka forecast this year’s oil bill will hit 1.8 billion dollars, after paying 2.1 billion dollars in 2006 due to the sharp rise in international crude prices.

Three foreign banks with local branches — giants Citibank, Deutsche Bank and Standard Chartered Bank — were selected to hedge up to 25 percent of Sri Lanka’s total oil purchases for a six month period.

“We are currently buying diesel at 70 dollars a barrel, with six month prices fixed at around 72 dollars a barrel,” he said, referring to prices for future