Oil companies scale up dollar purchases

Demand spikes as firms seek to take advantage of low crude prices; analysts believe price slide is temporary

State-run oil marketing companies (OMCs) have stepped up dollar-buying to finance the rise in their crude oil purchases. In recent times, global crude oil prices have been below $100 a barrel.

“The average daily dollar demand of these OMCs is $150 million; these days, it has gone up to $300 million,” said the chief currency dealer of a state-run bank. Currency dealers said on Wednesday, state-run banks bought dollars for OMCs.

“The fall in global crude prices is temporary and OMCs are taking advantage of this. Due to this, the increase in dollar-buying by OMCs will not last long,” said a senior currency dealer with a private bank.

Earlier this week, Reserve Bank of India (RBI) Governor Raghuram Rajan had said lower oil prices might be a temporary phenomenon resulting from geopolitical risks.

The three state-run OMCs---Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — primarily meet their dollar demand through state-run banks.

To avoid the pressure of OMCs’ dollar demand, RBI had, after market hours on August 28, 2013, introduced a forex swap window for these companies, as earlier that day, the rupee had touched an all-time low of 68.85/dollar. This window was open till November 30, 2013, after which OMCs started meeting their requirements directly from the market.

On Wednesday, the rupee ended at 60.92 a dollar, compared with its previous close of 61.06. It gained due to expectations the US Federal Reserve wouldn’t announce any move to raise interest rates during its two-day meeting starting Wednesday.

However, currency dealers believe the rupee’s appreciation is temporary. “By the end of this month, there will be government debt payment, due to which the rupee might weaken, though RBI might not allow it to weaken significantly,” said a currency dealer with a state-run bank.

As of March this year, the government’s short-term debt, including external commercial borrowings, non-resident Indian deposits, investment by foreign institutional investors in sovereign debt and government commercial papers, stood at $89.23 billion, according to RBI data.