Option Collar

February 6 (LBO) – The Ceylon Petroleum Corporation will hedge up to a quarter of its diesel imports using options, with the first contract to be signed in a matter of days, officials said Tuesday. .

Ceypetco wanted to cap the diesel import price at around 70 dollars a barrel, but the price had already moved up to 72 dollars.

“If we had gone for this about ten days ago, we will have saved about 5 dollars a barrel,” says Petroleum Minister A H M Fowzie.

“But we had to wait for cabinet approval.”

CPC Chairman Ashantha de Mel says Ceypetco initially wants to hedge 450,000 to 650,000 barrels a month of diesel for six months.

“We feel the market has bottomed now and is on the up, and we think it is the right time to get in now,” he says.

Central Bank Governor Nivard Cabraal who has pushed the government at the highest levels to try out hedging says it will help the banks’ goal of achieving economic and price stability.

“So in order to stabilize the price we had to make use of a mechanism which ensures that there is a certain cap on the price,” Cabraal said.

The utility however will not buy exchange traded futures yet, but will enter into an over-the-count