MCX gas contract on the boil

Fuelled by surging energy demand the world over, the price of natural gas for the near month (August) contract on Multi Commodity Exchange (MCX) has risen 10 per cent to Rs 357.20 per mmBtu in the week ended Friday, from Rs 324 per mmBtu.

The MCX natural gas contracts recorded a turnover of Rs 1,992.67 crore with open interest of 31,48,000 mmBtu and volume of 5,67,65,000 mmBtu in the week under consideration.

Of late, rising energy demand is driving natural gas prices and volumes. Therefore, the open interest in natural gas contracts on New York Merchantile Exchange (NYMEX) has been hitting new records intermittently.

The open interest in natural gas futures on the exchange hit a new record at 9,48,193 contracts on Thursday, surpassing the previous record of 9,44,677 contracts of Tuesday.

MCX, too, has witnessed a significant growth in open interest and volumes in its natural gas contracts since its launch.

The open interest data of NYMEX are available 24 hours after the actual trade. Contrary to the current trend, the benchmark September natural gas contract fell 12.2 cents to $7.529 per mmBtu because of the $2.35 fall in crude oil prices and a mild US weather this week.

The contract touched a record high of $7.90 after the US Energy Information Administration storage report had showed that natural gas stocks fell 12 billion cubic feet in the week ended August 4, much higher than market expectation of 1 billion cubic feet.

In contrast, the open interest on the country's only natural gas futures trading platform remained higher at 35,36,000 contracts on Friday than the previous day level of 23,48,000 contracts. Today's volume, however, remained lower than Tuesday's record high volume at 40,47,000 contracts.

The five-year average for the same week was a rise of 61 billion cubic feet. It was only the second fall in natural gas stocks during a summer week, following a 7 billion cubic feet drop in the week ended July 21.

Natural gas prices have refused to cool down despite NYMEX increasing margins on all contracts nearly 60 per cent during the last two weeks.

The surge is due to the increasing demand for natural gas for electricity generation in the US amid record high temperatures in the country.

"Natural gas prices are estimated to go up further owing to the extraordinarily hot conditions in the US, which are demanding more power," a trader said.