Mumbai, Jan. 5: Reliance Industries Ltd (RIL), the country’s largest private sector company, has racked up big losses as its bets on oil futures went wrong in 2008.

Speculation is rife that the mark-to-market losses on the oil price hedges are over $1 billion. It is not immediately clear whether this will impact the third-quarter results that are due later this month.

However, a source close to the development said the loss estimates were way off the mark and would be in the region of “hundreds of millions of dollars”.

RIL is the largest oil refiner in the country with a fairly large presence in the oil exploration and production business.

Asked to comment on the development, a RIL spokesperson said, “We will not be able to comment specifically on your query on account of the silent period.”

There have also been unconfirmed reports that a large number of treasury officials, who worked in the supply and trading division and were involved in these transactions, are no longer with the company.

“It is difficult to assess how much losses have been incurred on oil futures trading as it depends on the contracts they have entered into, what prices these were struck at and when they ended. This kind of trading has nothing to do with physical operations of the company and, therefore, crude requirements are not the benchmark,” said an analyst who did not wish to be named.

RIL has suffered losses because the price of crude oil has dropped from $136.32 a barrel in the third week of July 2008 to $35.99 in the last week of December 2008 (see chart).

There is little clarity on whether Reliance traded in crude or a basket of products, and the prices and the tenures of these futures contracts. The company suffered losses because it may have contracted to buy or sell a particular product at a date in the future at a price determined by market forces.

Since it isn’t clear whether all the contracts have expired, it is possible for the company to recoup some of the losses if oil prices recover. Oil prices have been rising since the December lows.

As oil prices plummeted by over 60 per cent in the past six months, the company, like the rest of the oil industry, was caught on the wrong foot.

RIL posted a turnover of Rs 89,163 crore and a net profit of Rs 8,232 crore in the half year ended September 30, 2008, an increase of 38 per cent and 10 per cent, respectively, compared with the corresponding period of the last year. The RIL scrip closed at Rs 1,365.75 on the Bombay Stock Exchange today.

Most brokerages are expecting RIL’s gross refining margins to tumble to a single digit in the third quarter from $13 per barrel in the second quarter ended September 30.

While reaffirming its BBB long-term corporate credit rating for RIL, Standard and Poor’s had said last week: “Profitability is expected to be adversely affected by lower fuel demand, especially in developed markets. We project refining margins to decline further to $9-$10 per barrel in the near term.”