The Indian government is planning to ask state oil firms to lock in their crude futures purchase prices, a government source said on Thursday, anticipating a spike when US sanctions on Iran snap back again in November.

The move would be another step to tackle a slide in the rupee, as oil prices are putting pressure on India, which imports some 80 per cent of its crude demand. Its currency has fallen sharply this year against the US dollar, amid a wider sell-off in emerging markets.

“The futures should be locked in when crude price is down,” said the source, who is familiar with deliberations on the matter, adding the step should have been taken earlier.

The rupee, Asia's worst performing currency this year, has depreciated about 12 per cent year-to-date against the US dollar, closing at 72.39 on Wednesday, after a record low of 72.99 on Tuesday. Markets were closed on Thursday. The government is expected to announce a set of measures to discourage non-essential imports to stem the slump in the currency.

Separately, a senior finance ministry official said there was a view that the rupee could weaken further in the next two months if proposed steps failed to kill “speculation in the rupee market”. “The gap between the announcement of steps and action is creating a space for speculation. We have to stop this,” said the official.

Many proposals

Officials at oil companies said they were open to the idea of locking in futures if the government asked. A senior official at state-owned Indian Oil Corp said they were considering some options in terms of forward contracts. He declined to give details saying this was “market sensitive information”.

An official at BPCL, another state-owned oil firm, said they were trying to hedge margins, under a policy reviewed every quarter. The company is also studying a proposal to buy dollars directly from the Reserve Bank of India instead of the market, in a bid to quell strong dollar demand that is denting the rupee. “Whenever, there is sharp volatility in exchange rates, this dollar window is opened. We're studying the proposal,” he said.

Another official at state-run HPCL said the government had not officially asked for it to examine forward contracts. “In case it is needed, or the government wants us to, we will then look into it,” the HPCL official said. The officials declined to be named as the proposals are still under consideration.

India's risk-averse state-owned refiners have in the past been reluctant to engage in futures trading or hedging strategies, fearing administrative blow-back if bets go wrong. The refiners typically buy up to 70 per cent of their oil needs through term deals and the remainder through spot markets. Unlike state refiners, private players Reliance Industries and Nayara Energy use hedging tools to lock in costs on the international market.

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