The Hindu Business Line : Crude futures catching fancy of bullion, equity investors

CRUDE futures offered by the Multi Commodity Exchange (MCX) are no longer the exclusive domain of the corporate sector. Other investors are now getting hooked to it.

While the corporate sector, hedging the risk on crude, continues to be the mainstay of the business, the exchange is recording significant rise in interest from bullion traders and investors who participate in the securities market.

Launched on February 9, the crude futures exchange had recorded a peak contract volume of 21 lakh barrels worth over Rs 502 crore on June 2. The average daily volumes are hovering between 10 and 15 lakh barrels. This is against a peak turnover of Rs 114.9 crore on an average daily volume of four lakh barrels recorded till end March.

In terms of value, the average daily volume now crosses Rs 350 crore against Rs 70 crore in first two months. The open interest position, which was four lakh barrels on an average in March, had gone up to 7.4 lakh barrels in June.

What is interesting is that out of a peak volume of 21 lakh barrels as recorded on Thursday, roughly 35 per cent is on open interest position or under long-term contracts. While it is difficult to ascertain as to what extent of the daily trade are settled on long term basis, there is little doubt that a significant volume is contributed through short settlements - including intra-trade trades done purely on a day-to-day basis to exploit arbitrage opportunities.

When asked whether the rise in speculative interests is good for the exchange, Mr Joseph Massey, Deputy Managing Director of MCX, told Business Line that the existing share of open interest position in the volume traded is "very healthy". He, however, declined to set any benchmark for the same.

According to Mr Massey, the investors in the securities and bullion market are increasingly taking interest in the crude futures. Bullion being negatively correlated to crude is especially catching the fancy of investors.

Interestingly, just like the general investors, corporate sector is equally increasing its exposure to crude futures. The open interest clearly signifies the growth in corporate investors hedging the risk of procuring crude oil or products having price correlation with crude oil, through long-term contracts.

The trend has encouraged MCX to look forward to launch of futures trading in other petro-products "expectedly in this fiscal" which will bring large oil refiners and producers to crude futures trading.

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