Crude oil futures seen flaring up on refiner interest

Daily turnover in crude oil futures is expected to touch Rs 500 crore in the next two months.

The Multi Commodity Exchange of India (MCX) is the only domestic exchange to offer futures contracts on crude oil, and reports a daily turnover of Rs 60 crore.

Venkat R Chary, chairman, MCX, said the high volatility in the global crude oil prices has attracted several state-owned oil companies to trade on the exchange as they would like to hedge their positions.

Indian Oil Corporation as well as Hindustan Petroleum Corporation (HPCL) have evinced interest in trading on the exchange. At present, Larsen & Toubro, Reliance Industries, Bharat Petroleum and Essar Oil are actively trading on the exchange.

Chary claimed that, "once these two players (IOC and HPCL) also enter futures trading, we expect the daily volumes on crude oil alone to cross Rs 500 crore."

He pointed out that "this is an indigenous tool to hedge positions in the highly volatile crude oil market. The first crude oil contract for April was done in March. The exchange will attract several companies as now May and June futures on crude oil are also available."

In the first six week after the MCX launched crude oil futures on February 9, as many as 6 million barrels of oil valued at Rs 1,215 crore have been traded in as many as 20,412 transactions.

"Our daily volume on crude derivatives is close to Rs 60 crore," he added. Chary was speaking at the sidelines of a 3-day seminar 'Energy Options 2005' organised by the Bombay Chamber of Commerce.

The oil giants are hedging their positions considering high volatility in global crude prices which crossed $ 56 per barrel. With no signs of softening of crude prices, several oil companies are keen to hedge their positions. India imports almost 70 per cent of the its crude requirement.

MCX's price realisation for crude oil was close to the price traded on the New York and Tokyo commodity exchanges, another executive at MCX pointed out.

"Since price realisation is almost same, one can trade on this exchange in rupee terms rather than dealing in dollars on the Nymex or Tocom," they point out.