Mazut Worth $26m Offered as Forward Contract

EghtesadOnline: Over 68,000 standard parallel Salaf (forward) securities for fuel oil (mazut) worth 4 trillion rials ($26.8 million) was offered Monday by the National Iranian Oil Company on the Derivative Market of Iran Energy Exchange.

News ID: ۷۴۷۳۳۷

14 May 2019

According to the Securities Exchange News Agency, each security is worth the equivalent to 1 ton of fuel oil calculated in rials and based on prices mentioned in the maturity date.

Standard parallel salaf is an Islamic contract similar to futures, with the difference being that the contract’s total price must be paid in advance.

Based on the contracts, NIOC sells its products at a fixed price for delivery at a future date, but guarantees repurchase at a higher price at maturity, Financial Tribune reported.

In other words, the NIOC pays interest on the futures to attract investors and uses the money to finance development projects.

Mellat Investment Bank is in charge of subscribing the securities and paying the yield on bonds. NIOC has guaranteed the principal and yields of the bonds.

The overnight bond yield is set at minimum 17.5% which can be increased up to 19% if mazut prices rise.  The securities are tax free.

Bonds mature in one year and can be settled both via physical delivery of mazut or in cash on maturity date.  They also can be traded as put option contracts by investors and call options by NIOC.

Call options are agreements that give the buyer the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period.

The stock, bond or commodity is called the underlying asset. A call buyer profits when the underlying asset price increases.

A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame.

IRENEX is a self-disciplined commodity exchange that trades physical energy carriers (oil, gas, electricity) and commodity based securities. Since its inception, the market has financed energy sectors to the tune of over 71 trillion rials ($500 million).