Petroleum Corp, Citi in hedging contract

The Ceylon Petroleum Corporation (CPC) has entered into a hedging contract with Citi to manage the price volatility and provide relief for a part of its oil imports.

It is difficult to predict when oil prices will increase or decrease as geo politics play a major role. Therefore hedging will keep the prices down within the next six months.

Under the agreement Citi will hedge 100,000 barrels of crude oil and diesel imported by CPC. This will help CPC to save valuable foreign exchange and also give subsidies to the people and organisations such as CEB.

Country Head and CEO Citi Sri Lanka Dennis Hussey said that the CPC plays a vital role in Sri Lanka's economy as one-fifth of the country's imports bill consist of oil.

Therefore we are very happy to be involved in this trailblazing hedge as this will help reduce the oil price. Presenting the cheque for US$ 772,500 to CPC Chairman, Asantha De Mel, Hussey said this money goes to the people of Sri Lanka and it is very rare that a Sri Lankan corporation adopts these innovative methods. It is a way forward if inflation is to be curtailed.

Product Specialist Citi Singapore, Anath Doraswamy described the hedge as trailblazing adding that prices will drop because of the hedge.

He said the future goal of Citi is to move into commodities in a big way in the markets we operate. Economies are driven by commodities and therefore if commodities are hedged it reduces inflation.

De Mel said that the CPC has the option of adjusting the hedged price as well, which is a big advantage for us. He said that the Central Bank is concerned with the impact of the high oil prices on inflation and called upon the CPC to look at ways to reduce the risk. One option was fuel hedging.

This tie-up was a result of it, he said. He said that prior to this they did a crack margin hedge with the Standard Chartered Bank for six months as well.

He said that the CPC only hedged diesel and crude oil because they did not see the need for hedging petrol.

Citibank N.A. Sri Lanka branch commenced operations in December 1979 as a full service branch of Citibank N.A. New York and has been a part of Sri Lanka's active financial market since its inception.

CPC, the national oil corporation (Refiner and Retailer) is fully owned by the government.

Sri Lanka is a net importer of crude oil and refined petroleum products with an annual demand of approximately 3.8 mln metric tonnes. CPC commands a 80% market share of the downstream petroleum market (refined products including petrol, diesel and jet kerosene). CPC 's refinery provides 50% of its own sales volume and caters to about 40% of the annual demand in the country.

S.G