Strengthening its presence in the energy sector, Multi Commodity Exchange of India (MCX), the largest commodity exchange launched gasoline monthly contracts on Wednesday.
Being a by-product of petroleum refining, gasoline prices are proportional to crude oil prices across the world. Gasoline is used primarily as fuel in internal combustion engines in cars, motorbikes and all other vehicles using internal combustion engine. It is a flammable distillate of crude oil.
To be settled every month beginning January 2010, contracts are designed to be traded in a lot size of 4,200 US gallons while the maximum order size has been fixed at 420,000 US gallons. The exchange has fixed a tick size of 5 paise per US gallon.
Based on the market sentiments, the daily price limit will be 4 per cent on either side in which the exchange may revise up to 6 per cent without observing a cooling period. If the trade hits a price limit of 6 per cent, the daily price limit will be revised further by 3 per cent in any direction after observing a cooling period of five minutes.
Trade will be allowed during this cooling off period within the price limit. The price limit beyond 9 per cent will be relaxed after 15 minutes with the approval of the Forward Markets Commission, the commodity markets regulator.
Initial margin has been fixed at 5 per cent while the exchange keeps the liberty to impose special margins depending upon the price volat-ility. Individual clients can trade up to 4,000 contracts while members collectively may trade up to 12,000 contracts or market-wide open position whichever is higher.
Delivery would be ex-Mumbai port based with a total unit of 2.1 million US gallons with a 2 per cent tolerance limit while the exchange has fixed a delivery margin of 25 per cent.
In India, gasoline is a politically-sensitive commodity and hence, regulated by the government. A majority of the refineries in India are state-owned and follow steady pricing policy as per government regulations.
Major refiners include Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Mangalore Refinery and Petrochemicals Ltd and Reliance Industries (RIL) being a private refiner, exports most of its refined products to international markets.
RIL remained a big player in gasoline production. India produced about 14 million tonnes of gasoline in 2008, with a small increase from 12.5 million tonnes from the previous year.
Total gasoline sales, however, increased to approximately 10 million tonnes in 2008 as compared to 9 million tonnes last year. Gasoline exports from India have grown substantially. In 2004-05, exports notched up 2.90 million tonnes which surged to 4.22 million tonnes in 2007-08, witnessing a growth of 46 per cent.
This implies that local refiners that export these products are directly exposed to international price risk.
