The Hindu Business Line : <I>Desi</I> crude futures flare up

PRICES of crude oil futures at Multi Commodity Exchange (MCX) have increased by Rs 190-200 a barrel since its launch on February 9. This reflects a 10 per cent rise over a fortnight.

The upward movement is mainly on account of firmness in the global market and continued speculative buying by domestic players, especially stock and commodity brokers.

April 2005 contracts at the exchange were up Rs 202 a barrel to Rs 2,213 a barrel at intra-day trade on Wednesday, from Rs 2,011 a barrel on February 9. May 2005 contract prices were up Rs 192 to Rs 2,218 a barrel from Rs 2,026 on February 9. Spot prices were up 11.6 per cent to Rs 2,214 a barrel from Rs 1,983 on February 9.

The exchange launched light sweet crude oil futures on February 9. Two contracts — April and May — are currently being traded on the exchange. "Some trading volume has been generated in crude oil futures because it is a liquid counter. However, it is not liquid as gold, but one-rupee change in crude oil gives you the same amount of profit that gold gives you," said Mr Padam Bahal of Prateek Investments.

World crude oil prices firmed up toward a four-month high on concerns over a possible second-quarter OPEC production cut and tightening global market forecasts.

"WTI (Light Crude Oil) prices have crossed the $50 mark. I think the next support level is $52.99 per barrel. At MCX, the next upside support is Rs 2,286. Outlook is bullish in the short term," Mr Lalit Sharma, Research Analyst of Sushil Global Commodities, said.

"Commodity and stock brokers are currently active in crude oil futures. However, industry participation is very low. Participants' ratio of stock, commodity and industry players is 50:30:20," an official with MCX said.

According to an IOC official, the corporation has been watching the price movement for a while and many more players are expected to come in if the crude futures market develops.

"Today, no Indian players have direct exposure to WTI. The market is not yet driven by any fundamentals.

Nothing is driving this market other than speculation," he said.

"The Indian refiners are interested in crack spreads: the difference between the crude price and retail price of finished oil products.

We will be interested only if we are allowed to trade in crack spreads, " he added. According to him, MCX has indicated that it will soon introduce crack spreads in daily trading.

Meanwhile, a HPCL official said it was clearly speculative trading that was taking place, as players were aware that there was no physical delivery. "Indian refiners are interested in this trading.

But how can we trade WTI? We will be interested if the bourses introduce Brent and other crudes that we use," he said.

The exchange recorded a traded volume of 14,84,000 barrels, valued at about Rs 307 crore, till February 21. April contracts registered a volume of 10,61,300 barrels, valued at almost Rs 220 crore, while May contracts saw a trade of 4,22,700 barrels worth about Rs 88 crore.

Open interest of the April and May contracts is around 85,000 barrels.

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