Crude futures trading sees sudden rise at MCX

Given the high degree of volatility in crude oil following the geopolitical tension in Iran, speculative interest in crude oil futures has risen even at the domestic commodity exchange.

At the Multi Commodity Exchange (MCX), which claims to be the third-largest platform for crude oil futures, the value of these futures traded rose to a six-year high of Rs 761 crore in February this year. A total of 1.21 million barrels was traded. The highest monthly trade was seen in March 2006, when the value touched an all-time high of Rs 1,338 crore.

Experts attribute the high interest to price volatility. “Participants of the commodity futures market are moving from precious metals like gold and silver to crude oil, as the latter looks more promising,” said Vandana Bharti, assistant vice-president (commodity research) at SMC Capital.

Naveen Mathur, associate director (commodities and currencies) at Angel Broking, said the volatility arising out of the Iranian stand-off was drawing people towards oil futures.

Supply constraints related to Iran drove Brent crude futures to a nine-month high of $125.55 a barrel recently. Iran produces 3.5 million barrels per day (bpd) of oil, making it the second-largest producer in the Organisation of Petroleum Exporting Countries. It is also the third-largest exporter, after Saudi Arabia and Iraq.

There are apprehensions of a supply crunch following lower exports of crude oil from Iran on Western sanctions. The US is set to ban all oil trades with Iran from June. The EU is also set to embargo all Iranian oil from July 1. Iranian leaders have threatened closure of the Strait of Hormuz, a key transit route for global oil supplies, if increased Western sanctions halted Iranian exports.

Experts believe the gap created by a drop in Iranian exports would be compensated by higher export from Saudi Arabia, which is sitting on a sizeable surplus. While the latter’s production stands at 9.8 million bpd, its spare capacity is 2.5 bpd. This would take care of the rising demand from Asian nations, including India.

“Improved economic and employment data from US and other nations, along with supply-side fears arising out of geopolitical tensions, is driving crude oil prices. The Iran issue and the bailout package given by the EU to Greece are also positively helping crude oil prices,” Bharti added.

While Iran faces challenges to its oil sales, customers are offering to buy more crude from rivals in the coming months. India, the second-largest buyer of Iranian oil after China, has contacted Saudi Arabia and Iraq in recent weeks, as it seeks supplies for expanding refining capacity.