MCX moderates margins on crude oil futures, brokers cut positions sharply

Significant fall in number of contracts traded since Friday, brokers advise clients to stay away from what they see as a very volatile market

Crude oil traders are struggling to pay the shortfall in margins three days since the rout on Monday when prices crashed. While banks were closed yesterday, MCX was open for the evening session when some long positions in crude were cut due to margin shortfall, market sources said.

There was some relief yesterday, though, as a modest price recovery reduced additional margins requirements for players reeling under a cash crunch. And today, with the market settling down, MCX cut margins from 60 per cent to 45 per cent, indicating reduced stress levels.

Ajay Kedia, director at Mumbai-based Kedia Avisory said, “This is a very difficult time for commodity brokers, as Indian crude prices nosedived this week to their biggest-ever single-day decline. Brokers were busy collecting margins, which rose from 15 per cent to 60 per cent.”

Today, however, there was some moderation in margins following a recovery in crude prices on bargain buying and hopes that US producers will cut output.

On Monday, when crude prices tanked on the MCX, there was a huge decline in open interest either to cut losses or to meet margin calls. Several positions were cut forcefully and the trend continued yesterday to some extent. While the morning session was closed yesterday, the evening saw a brief fall in price to Rs 2,335 a barrel. One source said that there was an immediately rebound from that level, indicating that the fall was the result of a forceful reduction due to which a large lot from open interest was reduced.

On Friday, open interest in crude was over 29,000 lots and fell to 18,449 yesterday. However, those who had paid margins and managed to hold on to long positions, seem to have expanded their exposure with open interest rising again, and with the reduction in margins.

However there has been a significant fall in number of contracts traded since Friday. Brokers have been advising many clients to stay away from what they see as a very volatile market.