The Hindu Business Line : Interest waning in crude futures

Turning cold
Lower liquidity heightens cost impact on transactions.
Bid-ask spread at a high of Rs 14 on NCDEX.
Price volatility taking toll on liquidity.

Kolkata , July 26

Seen in the backdrop of active trades on natural gas future contracts, crude oil seems to have lost much of its shine to investors on MCX and NCDEX, and is reacting only in phases, in tune with either geopolitical movements or the US inventory position.

And with the turnover ruling at a lower level during last few months, the Brent futures on NCDEX witnessed a near wipe out of liquidity in recent weeks. The WTI-linked future on MCX, though in comparatively sound health, is generally maintaining a sleepy trend.

The exchange registered a turnover of Rs 460 crore on July 17, the second highest since the Rs 525 crore registered on May 10, which itself was lower than its previous highs.

The average turnover during the last week was approximately Rs 303 crore.

While Mr Vivek Bajaj of Mars Comtrade does not have much to complain about the liquidity position in crude futures on MCX, Mr Anand Singhania of Prompt Securities thinks that the lower liquidity has heightened the cost impact on transactions.

"As against a maximum bid-ask spread of Re 1 per barrel in the past, trading sizable quantities on MCX crude now involves a cost impact of Rs 3-4 per barrel," Mr Singhania said, adding that the situation was worse on NCDEX where the bid-ask spread has touched a high of Rs 14.

While NCDEX officials were not available for comment on the developments in crude oil, market sources said during the last week, NCDEX registered a maximum turnover of approximately Rs 25-30 crore (on July 17) on crude oil.

According to market sources, the average turnover on the front contract was close to Rs 10 crore during the last week.

Reflecting on the overall crude futures market in India, Mr Naveen Mathur of Religare Comdex said the market movement was range-bound and based primarily on fundamentals leading to lower price volatility.

The latter in turn is taking a toll on liquidity.

Sentiments are bullish on crude oil in the long term.

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