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The Organization of the Petroleum Exporting Countries (Opec) agreement to cut crude oil production by 1.2 million barrels per day from January 1 has trapped bear operators in India.
These operators had built short positions assuming such an agreement would not happen. Large Indian traders have started covering short positions and have reduced their open interest significantly.
The total open positions on the Multi Commodity Exchange (MCX) at Tuesday’s end of session were 17,162 lots, which declined to 12,950 lots at end of session on Wednesday.
Due to the heavy short covering and rising international prices, West Texas Intermediate jumped almost 10%in the evening session on the MCX. Trading was halted thrice at circuit breaker levels of 3, 6 and 9 per cent.
Brent crude was trading 3.77%higher at $51.74 a barrel on Thursday after rising 8.53%on Wednesday. On the MCX, crude oil futures were 1.42%higher at Rs 3,425.
Open interest in the initial hours on Thursday increased to 15,643 lots as bears turned bullish. “Trading was normal and due to short covering margin issues have not arisen,” said a source.
“Crude oil prices could rise 3-5%and at a higher level shale oil supply could start coming in,” said Kishore Narne, head of commodities at Motilal Oswal.
“The Opec decision was first such coordinated action among Opec members and Russia in 15 years. The short covering on Wednesday on the MCX led to a surge in prices. Prices are likely to rise in the near future,” said Jay Prakash Gupta, director and chief executive officer, Mdirect Commodities, a discount brokerage house.
Opec said this reduction would be shared among all Opec countries with some special considerations. These production adjustments are for the next six months and a further six months subject to a review in May.
A ministerial monitoring committee comprising Kuwait, Venezuela and Algeria has been formed to ensure compliance.
