RBI to meet dollar needs of 3 state-run oil firms

New Delhi | Mumbai: The Reserve Bank of India (RBI) has announced that it will meet the entire daily dollar requirements of Indian Oil, Bharat Petroleum and Hindustan Petroleum from October 12, taking one of the foreign-exchange market's largest recurring sources of dollar demand off the market as it seeks to ease pressure on the rupee.The three state-run refiners and oil marketing companies (OMCs) could need roughly $200 million daily for crude and petroleum imports, according to estimates based on August trade data. However, actual amounts could vary based on their crude sourcing, payment currencies and settlement terms, particularly for Russian oil, payments for which are largely made in UAE dirhams or rupees.Under the special window, the RBI will sell dollars to the three companies through designated banks at prevailing market rates, allowing them to meet their foreign-currency requirements without having to compete for dollars in the spot market. In April, the central bank had similarly directed OMCs to meet their dollar requirements through designated banks, according to industry executives.The measure, they said, is aimed primarily at reducing pressure on the rupee rather than addressing any shortage of dollars for oil companies. The companies have continued to obtain foreign currency from the market, although the cost of sourcing dollars has risen as market conditions have tightened. The rupee closed at 96.74 against the US dollar on Friday."The immediate impact should be to remove a large and predictable source of dollar demand from the market," a treasury head at a private bank said on condition of anonymity. "If the window continues while pressure on the rupee remains elevated, it should help smooth volatility and reduce the impact of large oil-related flows on the currency."Oil companies are among the biggest regular buyers of foreign currency because India relies on imports for the bulk of its crude requirement. Their dollar purchases can become particularly significant during periods of rupee weakness, when importers seeking to cover their requirements add to demand for the US currency.India imported about 23 million tonnes of crude oil worth $11.7 billion in August, translating into an average import bill of roughly $377 million a day. Indian Oil, Bharat Petroleum and Hindustan Petroleum together processed about 55% of the crude handled by Indian refiners during the month, indicating a daily crude import bill of around $207 million, assuming a similar share of imports. However, not all of this translates into direct dollar demand.Industry executives said most purchases of Russian crude are currently settled in UAE dirhams or rupees. Russian oil accounted for about 45% of India's crude imports in August. Assuming that no payment was made in dollars for Russian oil, the three state-owned companies' direct dollar requirement for crude payments can be estimated at roughly $114 million a day, given that their sourcing mix broadly mirrors the industry. Even payments made in dirhams can indirectly feed into the dollar market because of the UAE currency's peg to the US dollar and the way banks manage the underlying foreign-exchange transactions, executives said.The OMCs also require foreign currency to pay for imports of refined petroleum products, primarily liquefied petroleum gas, as well as catalysts, equipment and some capital expenditure.

from Economic Times https://ift.tt/IJYQ6xt