Crude oil: Trading in black gold

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Now that you’ve been made aware of the important things related to crude oil, it's time we switched over to the crude oil trading part. Along with natural gas and gold, crude oil futures consistently appear in the top 5 most traded commodities in the MCX. The average trading value of the contract easily exceeds Rs. 3,500 crores in a day. Such heavy demand for this commodity also makes it one of the most liquid contracts available for a trader to trade.

Okay so, let’s get down to business and learn about crude oil trading in this commodity.

Crude oil: Contract specifications

Currently, there’s only a single crude oil contract variant available for trade in the MCX as opposed to two versions of it a couple of years ago. Here’s a quick overview of the crude oil futures contract.

Particulars

Contract specifications

Lot size 

100 barrels 

Price quote

INR value per 1 barrel

Tick size

1 rupee

Contract expiry date

Varies according to the contract launch calendar 

Contract availability

6 contracts  


For instance, if you check the list of available contracts on the MCX website in the month of February, 2021, you’re likely to find 6 contracts.


  • 19FEB2021 
  • 19MAR2021
  • 19APR2021
  • 19MAY2021
  • 21JUN2021
  • 19JUL2021

Maximum order size

10,000 barrels

Settlement 

Cash settlement 

 

Let’s now take a look at the current trading price of crude oil futures contracts. Here’s a snapshot from the MCX website showing the price of the contract.

As you can see from the snapshot above, a barrel of crude oil is currently trading at Rs. 4,382. Considering the fact that the minimum lot size of a futures contract of the commodity is 100 barrels, the total contract value comes up to Rs. 4,38,200 (Rs. 4,382 x 100). Now, the amount of margin that you would have to put up to purchase a futures contract of the commodity comes up to around Rs. 92,700.

Crude oil: Contract availability calendar

At any point in time, there are always 6 crude oil futures contracts available for trade. Each contract has a validity of 6 months and each month a new contract is introduced. Here’s a snapshot of the contract availability calendar for the year 2021, taken from the MCX crude oil contract specifications.

 

Since we’re currently in the month of February 2021, the following contracts are available for trade - 19FEB2021, 19MAR2021, 19APR2021, 19MAY2021, 21JUN2021, 19JUL2021. Now, once the February 2021 contract expires on the 19th, the next contract with 19AUG2021 expiry will open up for trade on February 22, 2021. This cycle goes on and on.

Here’s a point to note. If you wish to trade in the crude oil futures contract, it is always a good idea to stick to the near month contract since it always offers the maximum amount of liquidity. The other contracts with much farther expiries may not be very liquid, making buying and selling a lot tougher.

Wrapping up

Okay so with this, our short journey with ‘black gold’ has finally come to an end. In the forthcoming chapters, we’ll be taking a look at what the future may hold, and then focus on metals like silver, copper, aluminium, nickel, and lead. So, don’t forget to check back in.

A quick recap

  • Along with natural gas and gold, crude oil futures consistently appear in the top 5 most traded commodities in the MCX. 
  • Earlier, there were two crude oil contract variants trading on the MCX. Now, there’s just one.
  • The lot size of the contract is 100 barrels.
  • At any point in time, there are always 6 crude oil futures contracts available for trade.
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