Sour grade crude could hedge prices

The launch of crude oil futures contract at the Dubai Mercantile Exchange earlier on Monday will give Indian companies another window to hedge against risks by volatile global prices, industry officials said. The new futures contract is based on the sour grade (low quality) crude oil that is produced abundantly in West Asia.

The Dubai Mercantile Exchange is a joint venture between Tatweer, part of Dubai Holding, and New York Mercantile Exchange (Nymex), the world's largest energy trading centre. The primary grade of crude oil traded on the Nymex is the high grade West Texas Intermediate

"The new futures contract in Dubai will give us an additional hedging window against volatile crude oil prices," said a senior official with Reliance Industries, who did not want to be named.

Reliance, which operates a 33 million tonne per annum (mtpa) refinery at Jamnagar in Gujarat, buys a large share of its total crude oil requirement from West Asia.

The Jamnagar refinery has the capability to process low quality, high sulphur crude oil and convert it into Euro VI compliant petrol and diesel.

Currently sour crude oil is traded at the Tokyo Commodity Exchange (Tocom).

"Sour crude trading in another market is going to help reduce volatility in overall crude oil prices," said an analyst with an international consultancy.