• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Port Info

• Ships in Ports
  
  

Archives

• Yesterday
• Datewise
• Resources

Group Sites

• The Hindu
• Business Line
• The Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Dhimant Bhatt

Mumbai , Sept. 15

IT has been a good seven months since the country's first crude oil contract was launched. If MCX was the first to test waters in crude futures, NCDEX, in strategic partnership with International Petroleum Exchange (IPE), launched the next crude future platform on Thursday.

While MCX has both light sweet crude and Brent, NCDEX will have only Brent.

The current lot of crude futures traders are mainly stock broking houses, bullion dealers and some individual investors.

Currently, the crude oil futures contract comes in100 barrel unit, designed to meet the domestic requirements.

"We are hedging part of our requirement since March this year, not through any exchange, but through the OTC where we know who our trading partner is. We are on a wait and watch mode as far as Indian exchanges are concerned. Anyway, the volumes currently offered, of 100 barrels a unit, are not big enough," said Ms Sumita Bose Roy, General Manager, International Trade, BPCL.

Reliance Industries Ltd, a big time importer of crude, refused to talk about their crude futures play.

Essar Oil said it was yet to set up any desk for crude futures as its refinery still had a year to go.

The entry barrier for a non-industry player is not stiff - against a trading value per contract of Rs 3 lakh, a market participant can buy one unit by paying Rs 15,000, a five per cent margin. "Overall return in crude oil futures is good. One can earn up to about 6-7 per cent per month on his investment when he buys and sells at MCX platform of different contracts. Say on investment of Rs 15,000 by pay one time margin, one can easily book profit on price difference of two contracts," says Mr Hiralal Bafna, an industry analyst.

For example, when Mr Padam Bahal, a broker bought a August contract at Rs 2,990 a barrel and is in a position sell at Rs 3,000 a barrel in September contract, he would have made a profit of Rs 1,000 on the contract.

On an investment of Rs 15,000, this would mean a 72 per cent return on annualised basis. However, there is no guarantee that things work out in this manner all the while in a highly volatile market.

"I believe trading risk in crude oil futures is very low as the minimum investment is only Rs 15,000.

There is no question of it crashing to near zero levels as it sometimes does in equity share market.

Another advantage is that crude oil contracts has a non-delivery base option so that players can easily square off their positions at any point of time or settle their deals even on last day of trade," he adds.

The crude oil future turnover at MCX hit a high of Rs 2,540.52 crore on August 11, and given the demand for this commodity, it is expected that trade on NCDEX will be no slouch either.

"Market participation from user and consuming industry like producers and refiners is gradually increasing as the market turns volatile these days," a local broker said.

The futures contract provides a perfect hedging mechanism for the industry participants against vicious movements of oil prices.

Many domestic manufacturing companies in sectors such as petrochemicals, plastics and textiles whose final product prices are highly correlated with crude oil prices.

A crude contract on a domestic exchange would help them to significantly hedge their energy costs.

With the futures trading in Brent crude oil available at both the multi commodity exchanges, producers of crude oil such as ONGC and OIL can hedge their revenues thereby bringing in certainty in their cash flows and provide stable earnings.

However, the oil PSUs are yet to get active on MCX and it is on `wait and watch' approach to see how the NCDEX platform unfolds.

At present, the exchange operates from 10 a.m. to 11.30 p.m., unlike the global commodity exchanges that operate round the clock. Clearly, this is an anomaly as the domestic exchange is trading in global commodities.

Once this is corrected, one may witness a larger participation by some of the oil refineries, brokers say.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Big players still keep off crude futures — `Volumes offered not big enough'

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line