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Settlement of crude oil futures will be watched closely at Multi Commodity Exchange (MCX), India’s largest commodity exchange. This is after the price of crude oil futures expiring on Tuesday in the US turned negative and closed at minus $37.63 a barrel. MCX April month crude oil contract, which expired on Monday, closed at ₹965 at 5 p.m. MCX issued a late evening circular and said that "the settlement price of the contract as of now was fixed at Re 1 and further finalisation will be announced. This after the overnight crash in US at the NYMEX exchange, from where MCX derives its settlement price." SEBI will guide in fixing the further price, experts said.
MCX issued a circular on Monday said, “Due to the unprecedented price fluctuation in the international markets in crude oil, the due date rate for crude oil futures contract expiring on April 20, 2020 is under finalisation. In the interim, the provisional settlement price for April 20, 2020 is considered as Re 1 per barrel for the computation of members’ obligation for trade date April 20, 2020. The differential settlement, if any, on fixation of the final settlement price shall be done subsequently.”
It would remain to be seen of brokers can sustain the pay-in obligation after the overnight slump in crude oil price for April series, experts said. MCX Crude April expiry where MCX closed trading at 5 p.m. was last traded at ₹965 per barrel. Since the US crude oil at US$ -37(negative price) post mid-night the NYMEX, the settlement price difference is around between India and the US will be around ₹3,777 per barrel.
The calculation is (-37x76 = -2812) +965 = ₹3,777 per barrel. The ₹76 in this is conversion price of rupee into dollar multiplied by negative crude oil price and the total of which added with the last closing price of MCX April crude oil future price which will give the settlement price for traders.
At MCX, due to the price gap between US and MCX, the settlement obligation for brokers who were holding a long position in crude oil will be major, experts said. It remains to be seen if all brokers fulfil their obligation or how many defaults. Though margins are generally in 5 per cent to 10 per cent range, this price drop is multi-fold. There will be huge unexpected pay-in obligations for buyers, experts said. The buyer of MCX April crude oil, who did not sell, will have to take delivery.
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