Forwards Edge Up, Re In Thin Lane

With oil companies quietly making a foray into oil futures and forward

contracts for future deliveries, Indian shipping companies are expected

to face the prospect of excess capacity

of tankers.

Official sources said the empowered standing committee recommendations

have allowed the Indian Oil Corporation to undertake imports on the most

cost-effective mechanism.

Therefore, some of the contracts are in the form of futures and forward

contracts. Futures/forward contracts allow importers to lock into future

delivery dates. These purchases are made when oil prices are low and

tanker tariffs are, accordingly, very low. These rates allow the

importers to take advantage of both the low oil prices and low

transportation tariffs.

Quotations on forward purchases are inclusive of cost, insurance and

freight (cif). This, in turn, implies that oil would be transported to

Indian ports by foreign vessels. In India, at present, imports are

free-on-board (FoB) and exports are cif.

Futures and forward contracts are offered by traders who have no

physical stocks of the oil. Therefore, purchases are made only at the